Working Paper: NBER ID: w29483
Authors: Michael Sposi; Keimu Yi; Jing Zhang
Abstract: We add to recent evidence on deindustrialization and document a new pattern: increasing industry polarization over time. We assess whether these new features of structural change can be explained by a dynamic open economy model with two primary driving forces, sector-biased productivity growth and sectoral trade integration. We calibrate the model to the same countries used to document our patterns. We find that sector-biased productivity growth is important for deindustrialization by reducing the relative price of manufacturing to services, and sectoral trade integration is important for industry polarization through increased specialization. The interaction of these two driving forces is also essential as increased trade openness transmits global technological change to each country's relative prices, sectoral specialization, and sectoral trade imbalances.
Keywords: No keywords provided
JEL Codes: F11; F43; O11; O41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| sector-biased productivity growth (O49) | lower relative price of manufacturing compared to services (R32) |
| lower relative price of manufacturing compared to services (R32) | deindustrialization (L52) |
| trade integration (F15) | industry polarization (L59) |
| sector-biased productivity growth (O49) | deindustrialization (L52) |
| sector-biased productivity growth + trade integration (O49) | sectoral value-added shares (E25) |
| deindustrialization (L52) | decline in manufacturing value-added share (O14) |
| trade integration + sector-biased productivity growth (O49) | rise in industry polarization (L19) |