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Deindustrialization and Industry Polarization

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  • Michael Sposi
  • Kei-Mu Yi
  • Jing Zhang

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 as increased trade openness transmits global technological change to each country's relative prices, sectoral specialization, and sectoral trade imbalances.

Suggested Citation

  • Michael Sposi & Kei-Mu Yi & Jing Zhang, 2021. "Deindustrialization and Industry Polarization," NBER Working Papers 29483, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29483
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    Cited by:

    1. 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.
    2. 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.
    3. Matsuyama, Kiminori & Fujiwara, Ippei, 2022. "A Technology-Gap Model of Premature Deindustrialization," CEPR Discussion Papers 15530, C.E.P.R. Discussion Papers.
    4. Tasso Adamopoulos & Fernando Leibovici, 2024. "Trade Risk and Food Security," Working Papers 2024-004, Federal Reserve Bank of St. Louis, revised Feb 2024.
    5. Paul Gaggl & Aspen Gorry & Christian vom Lehn, 2023. "Structural Change in Production Networks and Economic Growth," CESifo Working Paper Series 10460, CESifo.
    6. Duc Nguyen, 2022. "Heterogeneous Paths of Structural Transformation," Working Papers tecipa-742, University of Toronto, Department of Economics.

    More about this item

    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
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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