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Working Paper
Deindustrialization and Industry Polarization
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 ...
Working Paper
Deindustrialization and Industry Polarization
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 ...
Journal Article
Curbing unemployment in Europe: are there lessons from Ireland and the Netherlands?
Since the mid-1980s, unemployment rates in Ireland and the Netherlands have plummeted, while the average rate for the European Union has maintained its longtime high level. Ambitious labor market reforms_including wage moderation and the tightening of unemployment benefits_have helped to bring the Irish and Dutch rates down. Other European countries would benefit from adopting similar reforms, but they are unlikely to see the same dramatic improvement in their unemployment numbers.
Working Paper
Trade Integration, Global Value Chains and Capital Accumulation
Motivated by increasing trade and fragmentation of production across countries since World War II, we build a dynamic two-country model featuring sequential, multistage production and capital accumulation. As trade costs decline over time, global-value-chain (GVC) trade expands across countries, particularly more in the faster growing country, consistent with the empirical pattern. The presence of GVC trade boosts capital accumulation and economic growth and magnifies dynamic gains from trade. At the same time, endogenous capital accumulation shapes comparative advantage across countries, ...
Working Paper
How much of South Korea's growth miracle can be explained by trade policy?
South Korea's growth miracle has been well documented. A large set of institutional and policy reforms in the early 1960s is thought to have contributed to the country's extraordinary performance. In this paper, the authors assess the importance of one key set of policies, the trade policy reforms in Korea, as well as the concurrent GATT tariff reductions. They develop a model of neoclassical growth and trade that highlights two forces by which lower trade barriers can lead to increased per worker GDP: comparative advantage and specialization, and capital accumulation. The authors calibrate ...
Report
Is there endogenous long-run growth?: Evidence from the U.S. and the U.K
The key feature of endogenous growth models is that they imply that permanent changes in government policy can have permanent effects on growth rates. In this paper, we develop and implement an empirical framework to test this implication. In a regression of growth rates on current and lagged policy variables, the sum of the slope coefficients for each policy variable should be nonzero (zero) for endogenous (exogenous) growth models. In our estimation, we use time series data spanning up to 100 years for the United States and 160 years for the United Kingdom. We find that the implication for ...
Are trade deficits good or bad, and can tariffs reduce them?
Typically, trade deficits are viewed through a lens of exports and imports, with the latter exceeding the former. While that is a useful exercise, it’s also helpful to examine deficits through a macroeconomic lens.
Journal Article
Asia crisis postmortem: where did the money go and did the United States benefit?
The Asia crisis was originally expected to affect the U.S. economy adversely, mainly through reduced exports to, and increased imports from, the crisis countries. However, U.S. GDP growth in 1998, at 4.3 percent, was surprisingly strong. This article examines the effect of the crisis on the U.S. economy, using a quantitative approach that focuses on capital outflows from Asia. It finds that banks were the primary mechanism by which the funds left Asia, and that these funds did not flow directly to the United States. Rather, they went first to offshore banking centers and then to European ...
Working Paper
Trade Integration, Global Value Chains, and Capital Accumulation
Motivated by increasing trade and fragmentation of production across countries since World War II, we build a dynamic two-country model featuring sequential, multi-stage production and capital accumulation. As trade costs decline over time, global-value-chain (GVC) trade expands across countries, particularly more in the faster growing country, consistent with the empirical pattern. The presence of GVC trade boosts capital accumulation and economic growth and magnifies dynamic gains from trade. At the same time, endogenous capital accumulation shapes comparative advantage across countries, ...
Working Paper
A tale of two states: Maharashtra and West Bengal
In this paper the authors study the economic evolution between 1960 and 1995 of two states in India ? Maharashtra and West Bengal. In 1960, West Bengal?s per capita income exceeded that of Maharashtra. By 1995, it had fallen to just 69 percent of Maharashtra?s per capita income. The authors employ a "wedge" methodology based on the first order conditions of a multi-sector neoclassical growth model to ascertain the sources of the divergent economic performances. Their diagnostic analysis reveals that a large part of West Bengal?s development woes can be attributed to: (a) low sectoral ...