Spatial Linkages and the Uneven Effects of a Commodity Boom

We study the uneven effects of a commodity boom, documenting its impact across workers based on their skill and on the region where they live. To this end, we develop a dynamic quantitative model of an economy with many regions connected through interregional trade and migration. Empirically, we focus on the experience of Brazil during the commodity boom of the 2000s and calibrate the model using detailed micro-level data. At the aggregate level, the boom leads to a decline in the skill premium, resulting from a larger increase in the real wages of unskilled than skilled workers. The model indicates that the commodity boom accounts for a quarter of the decline in the skill premium observed during this period, and masks substantial heterogeneity across states and sectors. Finally, using the model to simulate counterfactuals, we show that spatial linkages—interregional migration and interregional trade—play an important role in shaping the impact of the boom. Spatial linkages reduce the decline in the skill premium at the national level, and also reduce the extent of spatial inequality due to the boom.