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De-industrialization of the Riches and the Rise of China

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  • Murat Ungor

    (Central Bank of the Republic of Turkey,)

Abstract

This paper studies the impact of the industrialization of China on the U.S. industrial employment share between 1978 and 2005. A comparison of the predictions of open and closed economy models suggests that a common explanation of de-industrialization in the literature, which is based on increased productivity in industry relative to services in a closed economy setting, is not compelling. My benchmark results suggest that the closed economy model accounts for 38.1 percent of the declines in the U.S. industrial employment share while the open economy accounts for 68.0 percent of the de-industrialization in the U.S. between 1978 and 2005. Moreover, the open economy model has more explanatory power to explain the secular changes in the U.S. industrial employment share in the post-1990 period. The open economy model accounts for 85.1 percent of the de-industrialization while the closed economy accounts for 37.4 percent of the de-industrialization in the U.S. between 1992 and 2005. Counterfactual experiments show that if the Chinese economy had experienced productivity in industry equal to that of the U.S., then the role of openness would have been diminished. The higher the elasticity of substitution between home and foreign industrial goods is, the more accelerated structural transformation in the U.S.

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  • Murat Ungor, 2011. "De-industrialization of the Riches and the Rise of China," 2011 Meeting Papers 740, Society for Economic Dynamics.
  • Handle: RePEc:red:sed011:740
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    References listed on IDEAS

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    Cited by:

    1. Uy, Timothy & Yi, Kei-Mu & Zhang, Jing, 2013. "Structural change in an open economy," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 667-682.
    2. Robert Dekle, 2013. "Real Exchange Rates in a Model of Structural Change: Applications to the Real Yen-Dollar and Chinese RMB-Dollar Exchange Rates," IMES Discussion Paper Series 13-E-02, Institute for Monetary and Economic Studies, Bank of Japan.
    3. Caroline Betts & Rahul Giri & Rubina Verma, 2017. "Trade, Reform, and Structural Transformation in South Korea," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(4), pages 745-791, November.
    4. Bah El-hadj, 2013. "Distortions, structural transformation and the Europe-US income gap," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 1-34, September.

    More about this item

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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