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Domestic Distortions and the Deindustrialization Hypothesis

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  • Paul Krugman

Abstract

It is widely believed that U.S. trade deficits have displaced workers from highly paid manufacturing jobs into less well-paid service employment, contributing to declining incomes for the nation as a whole. Although proponents of this view do not usually think of it this way, this analysis falls squarely into the `domestic distortions' framework pioneered by Jagdish Bhagwati. This paper models the deindustrialization hypothesis explicitly as a domestic distortions issue, and shows that while it makes conceptual sense it is of limited quantitative importance.

Suggested Citation

  • Paul Krugman, 1996. "Domestic Distortions and the Deindustrialization Hypothesis," NBER Working Papers 5473, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5473
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    References listed on IDEAS

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    1. Paul Krugman & Robert Lawrence, 1993. "Trade, Jobs, and Wages," NBER Working Papers 4478, National Bureau of Economic Research, Inc.
    2. Jeffrey D. Sachs & Howard J. Shatz, 1994. "Trade and Jobs in Manufacturing," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 1-84.
    3. Stephen Nickell & D Nicolitsas, 1994. "Wages," CEP Discussion Papers dp0219, Centre for Economic Performance, LSE.
    4. Brecher, Richard A., 1974. "Optimal commercial policy for a minimum-wage economy," Journal of International Economics, Elsevier, vol. 4(2), pages 139-149, May.
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    Cited by:

    1. Jean-Paul Fitoussi & Eloi Laurent, 2008. "North by Northwest: What’s Wrong with the French Model and How Can the Nordic Model Help," Documents de Travail de l'OFCE 2008-18, Observatoire Francais des Conjonctures Economiques (OFCE).
    2. Guillaume Daudin & Jean-Luc Gaffard & Sandrine Levasseur & Catherine Mathieu & Georges Pujals & Michel Quéré & Henri Sterdyniak, 2005. "Competition from emerging countries, international relocation and their impacts on employment," Working Papers hal-01065588, HAL.
    3. Jean-Luc Gaffard & Francesco Saraceno, 2007. "International Trade and Domestic Distortions: Modelling the Transition Process," Documents de Travail de l'OFCE 2007-18, Observatoire Francais des Conjonctures Economiques (OFCE).
    4. Miljkovic, Dragan & Paul, Rodney, 2008. "Income Effects on the Trade Balance in the United States: Analysis by Sector," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 40(03), pages 967-982, December.
    5. Teck Hoon, Hian, 1999. "Intraindustry trade, high-wage jobs, and the wage gap," Economics Letters, Elsevier, vol. 65(2), pages 213-220, November.
    6. Jean-Paul Fitoussi & Eloi Laurent, 2009. "Macroeconomic and social policies in the EU 15: the last two decades," Sciences Po publications 2009-21, Sciences Po.
    7. David Kucera & William Milberg, 2003. "Deindustrialization and changes in manufacturing trade: Factor content calculations for 1978–1995," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 139(4), pages 601-624, December.
    8. David Kucera & William Milberg, 2004. "Deindustrialization and changes in manufacturing trade: Factor content calculations for 1978–1995," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 140(3), pages 601-624, September.
    9. Arvind Panagariya, 2003. "Bhagwati Ramaswami: Why is it a Classic," International Trade 0308004, EconWPA.

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