Spatial distribution of skills and regional trade integration

Abstract

This study is a theoretical and empirical analysis of the effects of regional trade integration on the spatial distribution of skills. We first develop a theoretical model in the economic geography field to integrate heterogeneous workers, housing, local entrepreneurs and skill upgrading by unskilled workers. We then analyse how the domestic integration of each state in the USA, approximated by truck registrations, influenced the location choice of skilled and unskilled workers in 1940–1960. By using inter- and intrastate trade flow from the US Commodity Flow Survey, we also analyse the impact of regional trade costs for the contemporary period (1997, 2002, 2007). The theoretical model shows that the bell-shaped curve of spatial development displays a sorting of individuals and firms. Only high-skilled workers increasingly choose the core region during the process of regional integration, while intermediate-skilled workers move to the periphery due to the increase in the price of housing. By impacting differently on the opportunity cost to invest in skill acquisition in the core and the periphery, this sorting influences the regional creation of human capital. First a regional divergence in education investment occurs and then a convergence, but only for high-level regional integration. The empirical analysis confirms that regional trade integration has been a determinant of the spatial distribution of skills in the USA.