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Relative productivity growth and the secular "decline" of U.S. manufacturing

  • Marquis, Milton
  • Trehan, Bharat

There has been considerable debate about the causes of the "decline" of U.S. manufacturing over the post-war period. We show that the behavior of employment, prices and output in manufacturing relative to services over this period can be explained by a two-sector growth model in which productivity shocks are the only driving forces. Household preferences turn out to play a key role in our model. The data are consistent with a specification where households are unwilling to substitute goods for services (the estimated elasticity of substitution is statistically indistinguishable from zero), so the economy adjusts to differential productivity growth entirely by re-allocating labor across sectors.

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File URL: http://www.sciencedirect.com/science/article/B6W5X-4XHM1DD-1/2/deba5110737f4d9a5ae150d830bc5492
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Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

Volume (Year): 50 (2010)
Issue (Month): 1 (February)
Pages: 67-74

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Handle: RePEc:eee:quaeco:v:50:y:2010:i:1:p:67-74
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620167

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  1. Susanto Basu & John Fernald & Miles Kimball, 1998. "Are technology improvements contractionary?," International Finance Discussion Papers 625, Board of Governors of the Federal Reserve System (U.S.).
  2. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1998. "The Role of Investment-Specific Technological Change in the Business Cycle," RCER Working Papers 449, University of Rochester - Center for Economic Research (RCER).
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