Globalization and Structural Change in the United States: A Quantitative Assessment

We consider a dynamic general equilibrium model of international trade and structural transformation to explore the implications of lower trade costs for structural change in the United States. Changes in trade costs lead to structural change not only through the typical mechanisms present in closed economy models|sectoral-biased technical change and nonhomothetic preferences|but also through two additonal channels: the determination of sectoral net exports and the interaction between comparative advantage and aggregate trade imbalances. We map the model to data for the United States and the rest of the world for the period from 1970 to 2007 and show that: (i) the global decline in trade costs can explain 3.2 percent of the decline in manufacturings share in value added over the entire period, (ii) ignoring the endogenous determination of trade imbalances implies an overestimation of this contribution by a factor of three, and (iii) the decline, in isolation, of trade costs for imported manufacturing goods in the United States can explain up to 32 percent of the decline in this sector's share in value added.