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Rational Atrophy: The U.S. Steel Industry

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  • Aaron Tornell

Abstract

During the 1970s and 1980s the steel industry in the United States enjoyed trade protection. However, higher prices were reflected in a higher wage premium relative to the rest of the manufacturing sector, and in a greater share of profits divested by integrated steel producers. Furthermore, available technology innovations were not adopted on a timely basis. This failure combined with trade protection, allowed new small firms (the minimills) to capture about 40% of the US steel market. In this paper, we present a model that rationalizes these facts.

Suggested Citation

  • Aaron Tornell, 1997. "Rational Atrophy: The U.S. Steel Industry," Harvard Institute of Economic Research Working Papers 1806, Harvard - Institute of Economic Research.
  • Handle: RePEc:fth:harver:1806
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    References listed on IDEAS

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    1. Lenway, Stefanie & Morck, Randall & Yeung, Bernard, 1996. "Rent Seeking, Protectionism and Innovation in the American Steel Industry," Economic Journal, Royal Economic Society, vol. 106(435), pages 410-421, March.
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    Cited by:

    1. Benjamin H. Liebman & Kara M. Reynolds, 2009. "Innovation Through Protection: Does Safeguard Protection Increase Investment in R and D?," Working Papers 2009-18, American University, Department of Economics.
    2. Fabiano Schivardi & Martin Schneider, 2008. "Strategic Experimentation and Disruptive Technological Change," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 386-412, April.
    3. Aaron Tornell, 1999. "Privatizing The Privatized," Harvard Institute of Economic Research Working Papers 1869, Harvard - Institute of Economic Research.
    4. Blonigen, Bruce A. & Wilson, Wesley W., 2010. "Foreign subsidization and excess capacity," Journal of International Economics, Elsevier, vol. 80(2), pages 200-211, March.
    5. Tansey, Michael & Raju, Sudhakar & Stellern, Michael, 2005. "Price controls, trade protectionism and political business cycles in the U.S. steel industry," Journal of Policy Modeling, Elsevier, vol. 27(9), pages 1097-1109, December.
    6. Benjamin H. Liebman & Kara M. Reynolds, 2015. "Trade Liberalisation and Capital Spending by US Manufacturers," The World Economy, Wiley Blackwell, vol. 38(11), pages 1763-1780, November.
    7. Rogers, Robert P., 2013. "Bankruptcy and steel plant shutdowns," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(2), pages 165-174.

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