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De-industrialisation & the Balance of Payments in Advanced Economies

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  • Ken Coutts
  • Robert Rowthorn

Abstract

The paper discusses the enormous structural changes in trade and income flows that have occurred in Britain over the past sixty years. In 1950, Britain was a leading industrial power with a trade surplus in manufactured goods equal to 10% of GDP. There is now a trade deficit in manufactures of 4% of GDP. Over the same period, trade in services has moved into substantial surplus exceeding 4% of GDP. No other large industrialised country has experienced such a large shift in the structure of its trade. The paper uses a small model of the balance of payments to project the main components of the current account consisting of visible trade, invisibles (services), current transfers and net investment income. Various scenarios are considered. Under the most pessimistic scenario, there is a persistent current account deficit of around 5% of GDP. A deficit of this magnitude is not sustainable over the long-run.

Suggested Citation

  • Ken Coutts & Robert Rowthorn, 2013. "De-industrialisation & the Balance of Payments in Advanced Economies," Working Papers wp453, Centre for Business Research, University of Cambridge.
    • Handle: RePEc:cbr:cbrwps:wp453
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    File URL: https://www.jbs.cam.ac.uk/cbrwp453/
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    References listed on IDEAS

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    1. Victor R. Fuchs, 1968. "Some Implications of the Growth of a Service Economy," NBER Chapters, in: The Service Economy, pages 183-199, National Bureau of Economic Research, Inc.
    2. Philippe Aghion & Diego Comin & Peter Howitt & Isabel Tecu, 2016. "When Does Domestic Savings Matter for Economic Growth?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(3), pages 381-407, August.
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    5. Halmai Peter & Vasary Viktoria, 2009. "Economic Growth and Convergence in the European Union," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 1, pages 171-188, May.
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    7. Philippe Aghion & Peter Howitt, 2009. "The Economics of Growth," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012634, December.
    8. -, 2009. "Economic growth in the Caribbean," Sede Subregional de la CEPAL para el Caribe (Estudios e Investigaciones) 38668, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    9. Ken Coutts & Bob Rowthorn, 2009. "Prospects for the UK Balance of Payments," Working Papers wp394, Centre for Business Research, University of Cambridge.
    10. Coutts, Ken & Godley, Wynne, 1990. "Prosperity and Foreign Trade in the 1990s: Britain's Strategic Problem," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 6(3), pages 82-92, Autumn.
    11. Victor R. Fuchs, 1968. "The Service Economy," NBER Books, National Bureau of Economic Research, Inc, number fuch68-1, March.
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    Citations

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    Cited by:

    1. Emre Özçelik & Erdal Özmen, 2020. "Premature Deindustrialisation: The International Evidence," ERC Working Papers 2001, ERC - Economic Research Center, Middle East Technical University, revised Sep 2020.
    2. Ansgar Belke & Ulrich Volz, 2020. "The Yen Exchange Rate and the Hollowing Out of the Japanese Industry," Open Economies Review, Springer, vol. 31(2), pages 371-406, April.
    3. Lengyel, Imre & Nagy, Benedek & Udvari, Beáta, 2019. "Újraiparosodás Kelet-Közép-Európában - újraéledő centrum-periféria munkamegosztás? [Reindustrialization in Central and Eastern Europe: reviving the core and periphery division of labour?]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 163-184.
    4. Vu, Khuong & Haraguchi, Nobuya & Amann, Juergen, 2021. "Deindustrialization in developed countries amid accelerated globalization: Patterns, influencers, and policy insights," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 454-469.
    5. Yazgan, Sekip & Marangoz, Cumali & Bulut, Emre, 2022. "The turning point of regional deindustrialization in the U.S.: Evidence from panel and time-series data," Structural Change and Economic Dynamics, Elsevier, vol. 61(C), pages 294-304.
    6. Lengyel, Imre & Lengyel, Balázs & Vas, Zsófia & Szakálné Kanó, Izabella, 2016. "Az újraiparosodás térbeli kérdőjelei Magyarországon [Territorial questions of reindustrialization in Hungary]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(6), pages 615-646.
    7. van Neuss, Leif, 2018. "Globalization and deindustrialization in advanced countries," Structural Change and Economic Dynamics, Elsevier, vol. 45(C), pages 49-63.

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    More about this item

    Keywords

    Balance of payments; visible trade; invisible trade; investment income; model simulation;
    All these keywords.

    JEL classification:

    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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