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Deindustrialization and Industry Polarization

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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.

Suggested Citation

  • Michael Sposi & Kei-Mu Yi & Jing Zhang, 2021. "Deindustrialization and Industry Polarization," Working Paper Series WP 2022-44, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhwp:94917
    DOI: 10.21033/wp-2022-44
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    Cited by:

    1. Paul Gaggl & Aspen Gorry & Christian vom Lehn, 2023. "Structural Change in Production Networks and Economic Growth," CESifo Working Paper Series 10460, CESifo.
    2. Aristizabal-Ramirez, Maria & Leahy, John & Tesar, Linda L., 2023. "A north-south model of structural change and growth," Journal of Monetary Economics, Elsevier, vol. 133(C), pages 77-102.
    3. Ippei Fujiwara & Kiminori Matsuyama, 2022. "A Technology-Gap Model of Premature Deindustrialization," CIRJE F-Series CIRJE-F-1190, CIRJE, Faculty of Economics, University of Tokyo.
    4. Duc Nguyen, 2022. "Heterogeneous Paths of Structural Transformation," Working Papers tecipa-742, University of Toronto, Department of Economics.
    5. Hagen Kruse & Emmanuel Mensah & Kunal Sen & Gaaitzen Vries, 2023. "A Manufacturing (Re)Naissance? Industrialization in the Developing World," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(2), pages 439-473, June.
    6. Tasso Adamopoulos & Fernando Leibovici, 2024. "Trade Risk and Food Security," Working Papers 2024-004, Federal Reserve Bank of St. Louis, revised Feb 2024.

    More about this item

    Keywords

    Structural Change; International Trade; Sector Biased Productivity Growth;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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