Trade Competition and Migration: Evidence from the Quartz Crisis

Abstract

Agglomeration economies and clustering effects are a key driver of urban growth. They can also be a source of vulnerability when cities and regions specialize in exportintensive industries. Foreign competition, exchange rate movements, macroeconomic volatility, and technological change are all potential threats to exporters, and shocks to these industries can have long-run impacts on population size and growth. In this paper, I study an unusual confluence of all four of these trade shocks: The quartz crisis in Switzerland, which devastated the globally-dominant Swiss watch industry in the 1970s. I document the geographic agglomeration pattern of the industry and the impact of the crisis on exports, employment, and wages. Using a differences-in-differences strategy, I show that this series of trade shocks led to a large and rapid loss of population in affected areas, and a long-run change in growth patterns. I explore the mechanisms behind this population change, including the role of manufacturing employment and immigration. I discuss the implications of these results for theories of urban growth, and contrast them with recent work on the China shock in Europe and the United States.