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Trade and the Geographic Spread of the Great Recession

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  • Sebastian Stumpner

    (UC Berkeley)

Abstract
I use the large spatial variation in consumer demand shocks at the onset of the Great Recession to study the mechanisms behind the ensuing geographic spread of the crisis. While the initial increase in unemployment was concentrated in areas with housing busts, subsequently unemployment slowly spread across space. By 2009, it was above pre-crisis levels in almost all U.S. counties. I show that trade was an important driver of this geographic spread of the crisis. To identify the trade channel empirically, I make use of heterogeneity in the direction of trade flows across industries in the same state: Industries that sold relatively more to states with housing boom-bust cycles grew by more before the crisis and declined faster from 2007-09. These results cannot be explained by a collapse in credit supply. I then link the reduced form empirical evidence to a formal model of contagion through trade. In a quantitative exercise, the model delivers a cross-sectional effect of similar magnitude as the one found empirically and reveals that the trade channel can explain roughly half of the overall spread.

Suggested Citation

  • Sebastian Stumpner, 2014. "Trade and the Geographic Spread of the Great Recession," 2014 Meeting Papers 638, Society for Economic Dynamics.
    • Handle: RePEc:red:sed014:638
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    Cited by:

    1. Zhenyu Gao & Michael Sockin & Wei Xiong, 2019. "Economic Consequences of Housing Speculation," NBER Working Papers 26457, National Bureau of Economic Research, Inc.
    2. Babatunde Buraimo & Giuseppe Migali & Rob Simmons, 2022. "Impacts of the Great Recession on sport: evidence from English Football League attendance demand [US household tourism expenditure and the great recession: an analysis with the consumer expenditure," Oxford Economic Papers, Oxford University Press, vol. 74(1), pages 155-177.
    3. Walter Steingress, 2018. "The causal impact of migration on US trade: Evidence from political refugees," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 51(4), pages 1312-1338, November.
    4. Ahrend, Rudiger & Goujard, Antoine, 2014. "Are all forms of financial integration equally risky? Asset price contagion during the global financial crisis," Journal of Financial Stability, Elsevier, vol. 14(C), pages 35-53.
    5. Imbs, Jean & Pauwels, Laurent, 2019. "Fundamental Moments," Working Papers BAWP-2019-06, University of Sydney Business School, Discipline of Business Analytics.
    6. Wall, Howard, 2023. "The Great, Greater, and Greatest Recessions of US States," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 53(1), January.
    7. Álvarez, Roberto & García-Marín, Álvaro & Ilabaca, Sebastián, 2021. "Commodity price shocks and poverty reduction in Chile," Resources Policy, Elsevier, vol. 70(C).
    8. Antoine Berthou & Sebastian Stumpner, 2022. "Trade Under Lockdown," Working papers 867, Banque de France.
    9. McCrory, Peter B, 2020. "Tradable Spillovers of Fiscal Policy: Evidence from the 2009 Recovery Act," Institute for Research on Labor and Employment, Working Paper Series qt04n482qf, Institute of Industrial Relations, UC Berkeley.
    10. John A. Mondragon & Johannes Wieland, 2022. "Housing Demand and Remote Work," NBER Working Papers 30041, National Bureau of Economic Research, Inc.

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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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