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SERC/Urban and Spatial Programme Discussion Paper
Regional Manufacturing Wages: Dancing to the Tune of Trade Shocks
Filipe Lage de Sousa
April 2010
Paper No' SERCDP0046:
Full Paper (pdf)

JEL Classification: F12; F14; R12

Tags: economic geography; trade shocks; manufacturing wages

Firms generally choose to locate their production where profits are maximized. As costs affect profits, trade-offs between two marginal costs – employees’ wages and transport costs – may be important for decisions regarding location. Wages tend to be greater in industrial centres and decrease as transport costs increase. Trade shocks might impact regional wage disparities by making foreign markets, for example, relatively more attractive for firms than domestic markets. This paper tests these two hypotheses by using regional Brazilian data. Results corroborate that regions with higher transport costs present lower wages, and that trade shocks affect these regional wage disparities.