ECONOMICS WORKING PAPER SERIES
A U.S. REGIONAL MODEL OF
IMPORT COMPETITION AND JOBS
Ross Hallren
David Riker
Working Paper 2017-2-A
U.S. INTERNATIONAL TRADE COMMISSION
500 E
Street SW
Washington,
DC 20436
February 2017
The authors thank Saad Ahmad, Zeynep Akgul, and Michael Anderson for very
helpful comments and suggestions.
Office of Economics
working papers are the result of ongoing professional research of USITC Staff
and are solely meant to represent the opinions and professional research of
individual authors. These papers are not meant to represent in any way the
views of the U.S. International Trade Commission or any of its individual
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promote professional development of Office Staff by encouraging outside
professional critique of staff research.
A U.S. Regional Model of Import Competition and
Jobs
Ross Hallren and David Riker
Office of Economics
Working Paper 2017-2-A
February 2017
ABSTRACT
We develop an industry-specific partial equilibrium model that quantifies the
impact of trade policy on workers in the United States, while recognizing that
transportation costs separate U.S. product markets and labor markets into
sub-national regions. The model illustrates, in a simple way, how nationally
uniform changes in trade policy or in other costs of importing can have
significantly different effects on employment in different parts of the United
States, depending on differences in import penetration into the regions. We use
the model to simulate the impact of an illustrative ten percent reduction in
the cost of importing household appliances from China on employment in the
competing U.S. industry. If the U.S. product market is fully integrated
nationwide, then the reduction in import charges is estimated to reduce
industry employment in all regions of the country by 12.03 percent. If the
product market is separated into regions and there are no inter-regional
shipments, then the employment effects vary significantly across the regions,
including an estimated 5.08 percent reduction in industry employment in the
East and an estimated 27.68 percent reduction in the West. Finally, in a more realistic
intermediate case with inter-regional shipments estimated with an
industry-specific gravity model, the employment effects are an estimated 6.28 percent reduction in
industry employment in the East and an estimated 24.46 percent reduction in the
West. The model also estimates changes in the prices faced by consumers in each
region.
Ross Hallren
Office of Economics, Research Division
Ross.Hallren@usitc.gov
David Riker
Office of Economics, Research Division
David.Riker@usitc.gov
1. Introduction
In this
paper, we develop an industry-specific partial equilibrium model that
quantifies the impact of changes in trade policy on workers in the United
States, while recognizing that transportation costs separate U.S. product
markets and labor markets into sub-national regions. The model illustrates how nationally
uniform changes in trade policy or in other costs of importing can have significantly
different effects on employment in different parts of the United States,
depending on differences in import penetration into the regions.
The model is
motivated by the large and expanding literature on the economic impact of international
trade on local labor markets within the United States. This literature includes
recent studies by Autor, Dorn, and Hanson (2013a, 2013b, 2016), Acemoglu,
Autor, Dorn, Hanson, and Price (2016), Hakobyan and McLaren (2016), and Monte
(2016). These studies recognize that labor markets in the United States are
geographically segmented, and that differences in the industry shares of
employment in different parts of the country result in differences in workers’ exposure
to international trade and, ultimately, in regional differences in the effects of
trade on employment and wages.
While this
literature focuses on the fact that labor markets are geographically segmented
within the United States, the studies implicitly assume that there are no costs
of shipping goods within the United States or, equivalently, that the United
States comprises a single, perfectly integrated product market. Autor, Dorn,
and Hanson (2013a, 2013, 2016), Acemoglu, Autor, Dorn, Hanson, and Price
(2016), and Monte (2016) calculate the exposure of local labor markets to
imports from China based on industry shares of local employment and total U.S.
imports in each industry, regardless of where the imports enter the United
States. Following this approach, if local labor markets in California and Massachusetts
had the same industry composition of local employment, then they would be
considered equally exposed to imports from China, though most imports from
China arrive on the West Coast and are costly to ship to the East Coast.
Similarly, the measure of the exposure of local labor markets to NAFTA tariff
reductions in Hakobyan and McLaren (2016) combines industry-level measures of
trade exposure with data on the industry composition of local employment to
measure trade exposure: the authors assign imports to local labor markets based
on the location’s share of national employment in the industry regardless of
where the imports enter the United States.
However, if the country is not a single, perfectly integrated product market,
then analysis of the effects of trade on local labor markets should take into
account where the imports enter the country. The simplifying assumption of a
nationally integrated product market is no doubt adopted in this literature
because there is only very limited information on shipments of products between
different parts of the country, but it is not a realistic assumption. Shipping goods
within the country is clearly not costless.
This paper
is an attempt to relax this assumption and estimate how product market
segmentation within the United States affects the geographic distribution of
the labor market effects of changes in U.S. trade policy and other import costs.
There are many possible approaches to modeling the geographic segmentation of U.S.
product markets. This paper starts with two extreme scenarios, one in which the
48 contiguous states are fully integrated in a single national product market (but
labor markets are segmented into sub-national regions, as in the local labor
markets literature cited above) and another in which the product markets in the
United States are segmented into sub-national regional markets (and labor
markets are again segmented into sub-national regions).
If the product markets are regionally segmented, then there are differences in
employment effects across the regions that reflect asymmetries in import
penetration ratios and export shares. Our simple model is a “test kitchen” for evaluating
which of the data inputs and modeling assumptions have the largest effects on estimated
changes in industry employment.
We use the model
to simulate the impact of an illustrative ten percent reduction in the cost of
importing household appliances from China on employment in the competing U.S.
industry. If the U.S. product market is fully integrated nationwide, then the
reduction in import charges is estimated to reduce U.S. industry employment in
all regions of the country by 12.03 percent. If the product market is separated
into regions and there are no inter-regional shipments, then the employment
effects vary significantly across the regions, including an estimated 5.08
percent reduction in industry employment in the East and an estimated 27.68
percent reduction in industry employment in the West.
Finally, in a more realistic intermediate case with inter-regional shipments
estimated with an industry-specific gravity model, the employment effects are
an estimated 6.28 percent
reduction in industry employment in the East and an estimated 24.46 percent
reduction in the West.
We also use
the model to estimate the changes in the prices faced by consumers in each
region. The estimated reduction in consumer prices is 3.36 percent if the
product market is national, and the regional price effects range from a 1.44
percent reduction to a 7.61 percent reduction if the product markets are segmented
into regions.
The rest of
the paper is organized into six sections. The next section presents the modeling
framework. Section 3 discusses the data requirements of the model, and Section 4
discusses econometric estimates of the key elasticity parameter. Section 5
reports simulations of the employment effects of reducing the cost of importing
household appliances from China. Section 6 extends the model to include
inter-regional shipments of U.S. production. Section 7 offers concluding
remarks.
2. Modeling
Framework
The model demonstrates
how geographic product market segmentation affects the link between trade
policy and labor market outcomes. In this section, we consider two extreme
scenarios. In the first scenario, the country is divided into regions and that
there are prohibitively high costs of
shipping the products between the regions, though there is still international
trade. In the second scenario, there are not
any costs of inter-regional shipping. For example, if there were two
regions in the country, then the first scenario has a separate product market
for each region, and the second scenario has a single national product market.
In the
industry-specific model, there are CES
demands for varieties of the product. Each firm, domestic and foreign, produces
a unique variety, so the products of the industry are differentiated by firm,
and because different firms are located in different regions and countries, the
products are differentiated by country of origin and by sub-national region
within the United States. In the
equations below, we use the variable to
index different markets, which are in some cases sub-national regions within
the United States and in other cases foreign countries. We assume that consumer
preferences are identical across the sub-national regions.
Equation (1)
represents the percent change in expenditure in U.S. region on the
products of domestic producers in industry in U.S.
region .
(1)
The
variable is
expenditure in region on the
products in industry in
region , and . The variable is
total expenditure in region , is the
producer price of the products of U.S. region or foreign country , and is gross import charges included in the delivered
prices of these products in region . Gross import
charges, often called the power of
the trade costs, are equal to one plus the ad valorem rate of trade costs. For
international shipments, these trade costs include tariffs and other trade
barriers as well as international shipping costs. For inter-regional shipments
within the country, they only include shipping costs. The parameter is the
constant elasticity of substitution among varieties in industry , and represents the share of expenditures in region
on the
industry products
from U.S. region or foreign country .
Likewise,
equation (2) is the percent change in
expenditure in U.S. region on
industry imports from country .
(2)
We
assume that there is monopolistic competition as well as CES demands, following
Krugman (1980), Melitz (2003) and the extensive literature on trade with
imperfect competition. Delivered prices in region are a
constant markup over the marginal cost of production, represented by the wage
of the workers in U.S. region or foreign country ( ),
multiplied by the unit labor requirement ( ) and
the trade cost factor ( ).
(3)
Equation
(4) translates equation (3) into percent changes.
(4)
In our partial
equilibrium analysis, we assume that many of the economic variables remain
fixed when there are small reductions in the cost of importing this specific
product from a single country (China). The factors that remain fixed are total
expenditures in the region ( ), producer
prices ( ), wages
( ), unit
labor requirements ( ), and trade
costs on imports from all countries other than China ( ). With
these partial equilibrium simplifications, equations (1) and (2) reduce to
equation (5) for all regions and countries other than China (indexed by ) and to
equation (6) for China (indexed by ).
(5)
(6)
Equations
(5) and (6) quantify the impact of reductions in tariffs, but they can also
quantify reductions in other types of import costs that do not vary by region, like
exchange rate depreciations, or reductions in import costs that vary by region,
like freight costs.
As long
as the wages of the workers remain fixed, marginal costs are constant, and fixed
costs of production are already sunk, total industry employment in the region would
adjust in proportion to the changes in the revenue of the domestic producers in
the region. Equation (7) is an accounting relationship between the percent
change in industry employment and a share weighted average of the percent
changes in revenues in all of the different markets indexed by .
(7)
The
variable is the
share of production in region that
is consumed in market .
We also
assume that the small reduction in the cost of importing the product into the
United States will not have an effect on the exports of the U.S. producers, so if
market is a
foreign country. With this simplification, and using equation
(5), equation (7) reduced to equation (8).
(8)
The
variable indexes the sub-national regions in the United
States.
In the
extreme case where there are no inter-regional shipments, and for
all , where the variable is the
share of production in region that is
shipped from the United States to export markets. In this extreme case,
equation (8) simplifies to equation (9).
(9)
In the
other extreme case, where the product market is perfectly integrated across all
of the sub-national regions, is the
same for all regions since
prices are perfectly arbitraged and preferences are identical across the
regions. Assuming that is the
same for all regions (as is the case for a nationally uniform change in trade
policy), equation (8) again simplifies to equation (9), with the national
import penetration ratio prevailing in each of the sub-national regions.
According
to equation (9), the employment effects depend on the magnitudes of the reductions
in import costs, the region-specific penetration ratios for imports from China,
the elasticity of substitution in the industry, and the export share of regional
employment in the industry. If the product market is completely integrated
across the country, then the employment effects depend on the national import
penetration ratio and export share. If the product markets are regionally
segmented, then the differences in employment effects across the regions
reflect differences in regional import penetration ratios and export shares.
The
employment effects in equation (9) could be quite large, for example, if there
is a ten percent reduction in import charges, the export share is 20 percent,
the elasticity of substitution is 5 and the expenditure share in the region on
imports from China is 70 percent, then there is a 22.40 percent reduction in
industry employment in the region in the partial equilibrium framework,
according to equation (9). These relatively large employment effects reflect
the large market share of imports from China in this industry, the elasticity
of substitution, and the modeling assumption that labor supply to the industry
is perfectly elastic with respect to the small industry-specific change in
import charges.
On the
other hand, if there were general equilibrium reductions in wages and the
prices of domestic producers and general equilibrium increases in the prices of
Chinese exporters, then these adjustments would lessen the reduction in
industry employment. For example, if workers have only a limited ability to
switch industries, then the simplifying assumption of perfectly elastic labor
supply in our industry-specific model would be unrealistic.
Equation
(10) translates the percent change in industry employment in each region in
equation (9) into a count of displaced workers.
(10)
The
variable represents
the industry employment
in region before
the reduction in import costs.
Finally,
equation (11) represents the percent change in the industry-specific consumer
price index in region .
(11)
This
equation for the price effects is greatly simplified by the model’s assumptions
that wages, foreign producer prices, and markups do not change. The effect on
the overall consumer price index in region is the
product of the percent change in the industry price index in equation (11) and the
industry’s share of the region’s aggregate consumer expenditures, so the percent
change in the overall consumer price index should be very small in all of the
regions.
3. Data
on the Household Appliance Manufacturing Industry
We apply the
U.S. regional model to a specific four-digit manufacturing industry: household
appliance manufacturing (NAICS 3352). Table 1 reports the value of the
industry’s total employment and shipments of U.S. producers in 2014.
The table also reports U.S. exports of the industry to all countries, U.S. imports
from all countries, U.S. imports from China, and average U.S. tariff rates on
imports from China. In
the final row, the table reports an estimate of nationwide consumption of the
products of the industry, based on the domestic shipments and international trade
data. The U.S. industry accounts for less than half of total consumption in the
U.S. market, and imports from China play a large role in the market. U.S.
tariff rates on imports of this product from China were relatively low in 2014,
averaging 2.41 percent.
Table 1: Nationwide Statistics for U.S.
Household Appliances Manufacturing (NAICS 3352)
Economic
Measure
|
Value in 2014
|
Source
|
Total U.S. Employees
|
46,434
|
ASM
|
Total Value of Sales by U.S. Producers
|
$20,292,488,000
|
ASM
|
U.S. Imports
|
$24,395,906,698
|
Trade
Dataweb
|
U.S. Imports from China
|
$13,570,146,742
|
Trade
Dataweb
|
U.S. Exports
|
$4,249,723,545
|
Trade
Dataweb
|
Average Tariff on Imports from China
|
2.41%
|
Trade
Dataweb
|
U.S. Consumption
|
$40,438,671,153
|
Both
|
Our analysis
requires trade data that identify the customs districts of the U.S. imports and
exports. A district is a collection of neighboring U.S. ports (land and air
ports, as well as sea ports). The district-level trade data indicate transit
points where the imports enter the United States and where the exports leave, but
they do not indicate where the imports are consumed or where the exports are
produced. While the data do not reveal the regional origins and destinations
for the international trade flows, they can still be informative if we adopt
specific assumptions about the geographic segmentation of the product markets,
as we demonstrate below.
Table 2 is a
concordance that assigns the districts in the international trade data to the
eight BEA regions for our estimation of regional imports and exports. We
aggregate several of the adjacent BEA regions to simplify the analysis.
We use BEA regional data on personal consumption expenditures to approximate
the regional consumption of the products of the industry in 2014, assuming that
the expenditure share of a particular product is identical across the BEA regions.
We calculate the value of national consumption expenditure on the products of
industry as the
value of shipments of the U.S. industry minus exports plus imports. We
calculate the import penetration ratio for each region as the ratio of regional
expenditure on imports of the products to regional total expenditure on the
products.
We estimate
each region’s 2014 employment level as the product of the region’s share of
national manufacturing employment and the industry’s share of national
manufacturing employment. We estimate the geographic distribution of industry
employment in this way because published employment statistics for American states
are often not available at the level of specific industries due to
non-disclosure rules. The national export share is the ratio of exports to the total value of
shipments. To estimate export shares at the regional level, we allocate the
total value of shipments of the U.S. industry among the regions based on
estimated regional employment in the industry, and we use the value of exports from
each region based on the district-level data on international trade.
Table 2: BEA Regions and Assigned U.S. Customs
Districts
BEA Region
|
States and
DC
|
Customs Districts
|
New England
|
CT, ME, MA, NH, RI, VT
|
Boston MA, Portland ME, Providence RI,
St. Albans VT
|
Mideast
|
DE, DC, MD, NJ, NY, PA
|
Baltimore MD, Buffalo NY, New York NY,
Ogdensburg NY, Philadelphia PA, Washington DC
|
Great Lakes
|
IL, IN, MI, OH, WI
|
Chicago IL, Cleveland OH, Detroit MI,
Milwaukee WI
|
Plains
|
IA, KS, MN, MO, ND, NE, SD
|
Duluth MN, Minneapolis MN, Pembina ND,
St. Louis MO
|
Southeast
|
AL, AR, FL, GA, KY, LA, MS, NC, SC, TN, VA,
WV
|
Charleston SC, Charlotte NC, Miami FL,
Mobile AL, New Orleans LA, Norfolk VA, Savannah GA,
Tampa FL
|
Southwest
|
AZ, NM, OK, TX
|
Dallas TX, El Paso TX, Houston TX, Laredo
TX, Nogales AZ
|
Rocky Mountain
|
CO, ID, MT, UT, WY
|
Great Falls MT
|
Far West *
|
CA, NV, OR, WA
|
Columbia-Snake OR, Los Angeles CA, San
Diego CA, San Francisco CA, Seattle WA
|
*Note:
Alaska and Hawaii are included in BEA’s Far West region but are not included in
our model, because our model is limited to markets in the contiguous states.
Table 3
reports each region’s estimated penetration ratio for imports from China, its
export shares, and its employment levels in the household appliances industry in
2014. The penetration ratio for imports from China is much higher in the West
region (76.11 percent) than in the East region (14.47 percent). The national average
is 33.56 percent. There is much less dispersion in the industry’s export
shares, which are not China-specific. The regional export shares range from
15.20 percent to 25.37 percent, with an average of 20.04 percent. The two
regions with the most employment in the household appliance industry are the
Southeast and the Great Lakes.
Table 3: Regional Import Penetration, Export
Shares, and Employment in 2014
Region
|
Import Penetration Ratio for Imports
from China
(percentage)
|
Export
Shares
(percentage)
|
Estimated
Industry
Employment
(head count)
|
All 48 Contiguous States Combined
|
33.56
|
20.04
|
57,699
|
East
|
14.47
|
21.72
|
9,716
|
Great Lakes
|
33.02
|
25.37
|
13,675
|
Plains
|
19.71
|
15.20
|
5,441
|
Southeast
|
28.44
|
15.32
|
14,232
|
Southwest
|
14.41
|
22.42
|
5,919
|
West
|
76.11
|
18.91
|
8,716
|
Note:
The East region is a combination of the BEA’s New England and Mideast regions.
The West region is a combination of the BEA’s Rocky Mountain and Far West
regions.
Table 4 summarizes
the data requirements for estimating the effects on U.S. industry employment
and consumer prices. The rows of the table correspond to the different data
inputs of the model, none perfectly observed and all approximated. Calculating
the price effects requires the least data, while calculating the number of jobs
lost requires the most.
Table 4: Data Requirements of the PE Model
Model Input
|
Estimated
Percentage Change
in Employment
|
Estimated
Number
of Jobs Lost
|
Estimated Percentage
Change
in Prices
|
Import Penetration Ratio
|
Required
|
Required
|
Required
|
Export Share
|
Required
|
Required
|
Not
Required
|
Initial
Employment Level
|
Not
Required
|
Required
|
Not
Required
|
Elasticity of Substitution
|
Required
|
Required
|
Not
Required
|
4. Estimating
the Elasticity of Substitution
The
elasticity of substitution, , is not directly
observed in the data. We
estimate this parameter using an econometric model that relates the industry’s
import values to import costs. Equation (12) represents the specification in the
econometric analysis.
(12)
The
estimation uses a panel dataset that includes U.S. imports classified in NAICS
3352 by country, district, and year between
2010 and 2014.
The variable is the
landed duty-paid value of the industry imports
from country into
district in
year , and and are
industry-district-year and industry-country-year fixed effects. We consider two
alternative measures of import costs, : one
that includes freight costs and tariffs (the ratio of the difference between
landed duty-paid value of the imports and their customs value to their customs
value), and one based only on freight costs (the ratio of the difference
between CIF value of the imports and their customs value to their customs
value). The variable is the
error term of the model.
The specification
in equation (12) does not include many explanatory variables, but the fixed
effects control for many factors that we would otherwise include as explanatory
variables. The industry-country-year fixed effects absorb
producer prices in the industry in exporting
country in
year . The industry-district-year
fixed effect absorb
the industry price index and
aggregate expenditure level in the local market in year .
Table 5
reports estimates of for
the two alternative measures of import costs. In both specifications, the
estimate of for NAICS
3352 is positive and statistically significant. The first specification, with a
point estimate of 5.484, has slightly better overall fit, but the two estimates
are very similar.
Table 5: Econometric Estimates for Household
Appliances for 2010-2014
|
Trade Costs
Including Duties
|
Trade Costs
Excluding Duties
|
Elasticity of Substitution
|
5.484
|
5.302
|
|
(4.601 - 6.367)
|
(4.430 - 6.174)
|
Country Fixed Effects
|
Included
|
Included
|
District Fixed Effects
|
Included
|
Included
|
Number of Observations
|
5,884
|
5,884
|
R Squared
|
0.5621
|
0.5603
|
Note: 95 percent confidence intervals are reported
in parentheses.
5. Simulated
Effects of Reductions in Import Costs
In this
section, we use the calibrated model in equations (9), (10), and (11) to estimate
the regional employment effects of an illustrative ten percent reduction in the
cost of importing household appliances from China ( ). In the first of the extreme market
integration scenarios, the product market is perfectly nationally integrated. In
this case, the import penetration ratio for household appliances from China is
the same for all regions. The point estimates and confidence intervals for this
scenario are reported at the top of Table 6.
The estimated reduction in U.S. employment is 12.03 percent or 6,943 jobs. The
model estimates a 3.36 percent reduction in the household appliance prices
faced by U.S. consumers.
Table 6: Estimated Employment Effects and
Consumer Price Effects
Scenario
|
Region
|
Estimated Percentage Change in Employment
|
Estimated
Number
of Jobs Lost
|
Estimated Percentage Reduction
in Prices
|
Integrated
|
All 48 Contiguous States Combined
|
12.03
(9.66-14.40)
|
6,943
(5,576-8,310)
|
3.36
|
Segmented
|
East
|
5.08
(4.08-6.08)
|
493
(396-591)
|
1.45
|
Segmented
|
Great Lakes
|
11.05
(8.87-13.23)
|
1,511
(1,214-1,809)
|
3.30
|
Segmented
|
Plains
|
7.49
(6.02-8.97)
|
408
(327-488)
|
1.97
|
Segmented
|
Southeast
|
10.80
(8.67-12.93)
|
1,537
(1,234-1,840)
|
2.84
|
Segmented
|
Southwest
|
5.01
(4.03-6.00)
|
297
(238-355)
|
1.44
|
Segmented
|
West
|
27.68
(22.23-33.13)
|
2,412
(1,937-2,887)
|
7.61
|
Note:
The table reports 95 percent confidence intervals in parentheses.
In the second
of the extreme scenarios, the product markets are completely segmented into
regions, and the import penetration ratio for household appliances from China
and the export shares of U.S. employment in the industry vary by region.
The lower rows in Table 6 report point estimates and confidence intervals for this
second case. The largest impacts are in the West, Great Lakes, and Southeast
regions, and the smallest impacts are in the Southwest and Plains regions. The
percentage reductions in regional employment range from 5.01 percent to 27.68
percent, and the regional numbers of lost jobs range from 297 to 2,412. The
percentage reductions in regional prices range from 1.44 percent to 7.61
percent.
6. Inter-Regional
Shipments Based on an Industry-Specific Gravity Model
Clearly neither
of the extreme market integration scenarios no
inter-regional shipments or completely unrestricted inter-regional shipments are
completely realistic, and so we construct an intermediate scenario with some
inter-regional shipping, though the actual extent of inter-regional shipping is
not directly observable and is challenging to estimate. We extend the model to allow
for inter-regional shipments of domestic production, though we still assume
that there is no cross-hauling of international trade between the sub-national
regions. In this case, the reductions in import costs affect labor demand in
each region through an additional, less direct channel: they reduce domestic shipments
to other regions due to a reduction in the other region’s industry price index,
which is proportional to the other region’s penetration ratio for industry
imports from China.
We again define
as the
value of inter-regional shipment of the production of U.S. region to
U.S. region . Equation (13) is based on the log-linearized
reduced-form gravity model of trade flows in Baier and Bergstrand (2009).
(13)
where
(14)
(15)
The
variables , , , and represent
the national values (the sums over all of the U.S. regions) of consumption,
imports, exports, and domestic production in industry , and is an
index of the regions. We assume that when and
that inter-regional shipping costs have a constant elasticity with respect to inter-regional
distance, .
(16)
In equations
(13) through (16), the inter-regional shipments of industry are
determined by the magnitude of supply (net of exports) and consumption (net of
imports) in each region and the distance between the regions. We calibrate by
matching the modeled ratio of total inter-regional shipments to total
production net of exports, , to aggregate statistics on long distance
shipments of household appliances in the U.S. Commodity Flow Survey (CFS).
Table 7
reports data from the 2012 CFS for NAICS 335, the electric equipment sector
that includes, but is not limited to, household appliances. According to the
CFS, 45.1 percent of shipments by value and 53.0 percent of shipments by weight
were delivered within 500 miles of the U.S. manufacturer.
Table 7: Data on NAICS 335 Shipments from the
2012 U.S. Commodity Flow Survey
Distance
|
Cumulative Share
Value of Shipments
(percentage)
|
Cumulative Share
Tons of Shipments
(percentage)
|
Less than 50 miles
|
9.4
|
11.6
|
50 99
miles
|
14.3
|
17.4
|
100-249 miles
|
26.1
|
32.7
|
250-499 miles
|
45.1
|
53.0
|
500-749 miles
|
61.9
|
70.4
|
750-999 miles
|
73.6
|
80.5
|
1,000-1,499 miles
|
86.1
|
90.7
|
1,500-1,999 miles
|
93.9
|
96.8
|
2,000 miles or more
|
100.0
|
100.0
|
Based on
these data, we assume that approximately 55 percent of domestic production is
shipped between U.S. regions. Setting the
modeled ratio of total inter-regional shipments to total production net of
exports equal to 0.55, we estimate that is
equal to 0.22855. We use this parameter value to calculate the inter-regional
shipments in
equation (13), and then we estimate the shares
that determine the magnitude of the employment effects in equations (17) and (18).
(17)
(18)
In these
equations, the variable indexes all sub-national regions within the
United States.
Table 8
reports the estimated regional employment effects based on the inter-regional
shipments implied by the gravity model. The
employment effects range from an estimated 6.28 percent reduction in industry employment in the East to an
estimated 24.46 percent reduction in the West. The employment effects are generally close to
the segmented scenario in Table 6. They are slightly larger in the East and
Southeast regions but are much larger in the Southwest and Plains, regions that
ship a larger share of their production to the West according to the gravity
model. The employment effects are slightly smaller in the West and Great Lakes
regions. The price effects are the same as the segmented scenario in Table 6,
since they do not depend on the magnitude of inter-regional shipments of the
domestic producers.
Table 8: Estimated Employment Effects and
Consumer Price Effects
Region
|
Estimated Percentage Change in Employment
|
Estimated
Number
of Jobs Lost
|
Estimated Percentage Reduction
in Prices
|
East
|
6.28
(5.59-7.00)
|
610
(543-680)
|
1.45
|
Great Lakes
|
9.88
(8.12-11.63)
|
1,351
(1,110-1,590)
|
3.30
|
Plains
|
13.22
(11.10-15.16)
|
719
(604-825)
|
1.97
|
Southeast
|
11.17
(9.27-13.03)
|
1,589
(1,319-1,854)
|
2.84
|
Southwest
|
11.23
(9.66-12.62)
|
665
(572-747)
|
1.44
|
West
|
24.46
(18.42-30.50)
|
2,132
(1,605-2,659)
|
7.61
|
Note: The table reports 95 percent confidence
intervals in parentheses.
7. Conclusions
The
industry-specific regional model establishes that there can be significant differences
in employment and price effects across regions of the United States that depend
on differences in import penetration into the regions and the pattern of
inter-regional shipments. When inter-regional shipments are estimated based on
the industry-specific gravity model, the employment effects range from an
estimated 6.28 percent
reduction in industry employment in the East to an estimated 24.46 percent
reduction in the West. The estimated reduction in consumer prices range from
1.45 percent in the East to 7.61 percent in the West.
The model
demonstrates the importance of finding a way to reasonably estimate
inter-regional shipments. They are a key input to the model that needs
additional study. For example, a useful direction for future research might be
to apply the method for approximating inter-regional shipments in Section 6 to
Canadian data and then compare the gravity-based estimates to actual
inter-regional shipments reported in Canada’s inter-provincial trade data as a
test of the approximation that we have used in our analysis of U.S. data. The
method for estimating inter-regional shipments might also be improved by taking
into account the contiguity of regions and other gravity factors.
Another
significant limitation of the model is that employment in each region in the
household appliance industry is roughly estimated in Section 3, and this is an
area that could benefit from additional research.
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