Deindustrialization and Industry Polarization

65 Pages Posted: 15 Nov 2021 Last revised: 22 Jan 2025

See all articles by Michael Sposi

Michael Sposi

Southern Methodist University (SMU)

Kei-Mu Yi

University of Houston

Jing Zhang

University of Michigan at Ann Arbor

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Date Written: November 2021

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

Sposi, Michael and Yi, Kei-Mu and Zhang, Jing, Deindustrialization and Industry Polarization (November 2021). NBER Working Paper No. w29483, Available at SSRN: https://ssrn.com/abstract=3963711

Michael Sposi (Contact Author)

Southern Methodist University (SMU) ( email )

6212 Bishop Blvd.
Dallas, TX 75275
United States

Kei-Mu Yi

University of Houston ( email )

Jing Zhang

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

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