Local reallocation : lessons from bankruptcies during Britain's market integration

This paper documents a new consequence of market integration: local reallocation, i.e., the exit of some workers from production even though employment increases in the same area and industry. Thanks to new data on over 150,000 personal bankruptcies combined with detailed microcensus data from 19th-century Britain, we estimate the causal impact of railway access on employment growth and personal bankruptcies. Market integration increased both employment and bankruptcy probability solely in the manufacturing sector. Studying the mechanisms of local reallocation, we show that market integration increased the number and size of manufacturing firms that employed cheap, task-differentiated labour. Our results extend existing research focused primarily on reallocation either across sectors or across locations.