Foreign Opportunity and Local Revival: Evidence from the French Rust Belt

This paper studies the short- and long-run adjustment of distressed regions to a positive globalization episode: access to an increasingly thriving Luxembourg labor market for residents of the French "Rust Belt". We document a three-phase expansion of local labor markets, driven by a short-run workplace substitution of incumbent workers towards cross-border commuting, a medium-term rise in labor force participation, and a long-run sustained increase in population via net domestic in-migration.

Welfare effects for residents of treated areas are unequal: higher foreign incomes are partly offset by lower domestic employment, rising housing costs and congestion, and reduced fiscal transfers. Improved job opportunities abroad lead to a net decrease in far-right and anti-EU vote shares, muting the rise of populism visible elsewhere in former industrial regions of France.

Taken together, our findings suggest that former industrial regions are not inherently rigid, but that their capacity to adjust depends critically on the nature, scale, and spatial incidence of economic shocks.

Joint work with Antoine Levy.

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