The Long and Short-Run Spatial Impacts of Trade

We study the long and short-run spatial impacts of trade liberalization in a model with internal migration, skill formation, and capital accumulation. We show that the spatial impacts of trade on migration flows and skill composition depend critically on the time horizon. The time-varying impacts come from capital accumulation: trade liberalization allows faster capital accumulation in coastal locations, shifting comparative advantage across locations in the long run. In an unskill-abundance country, such as China, unskilled workers are attracted to the coastal locations due to trade liberalization in the short run; in the long run, however, the skilled workers are more likely to move to coastal locations due to the faster accumulation of capital stock in those locations and capital-skill complementarity.