Trade Shocks and Growth: The Impact of the Quartz Crisis in Switzerland

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 export-intensive industries. Foreign competition and technological change can threaten the survival of exporters, and shocks to these industries can have long-run effects on the communities which rely on them. In this paper, I study the impact of a rapid and large-scale trade shock: The quartz crisis, 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 trade shock 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.