Staff Report 489

Global Imbalances and Structural Change in the United States

Timothy J. Kehoe | University of Minnesota, Federal Reserve Bank of Minneapolis, National Bureau of Economic Research
Kim J. Ruhl | University of Wisconsin and National Bureau of Economic Research
Joseph B. Steinberg

Revised February 5, 2018

Since the early 1990s, as the United States borrowed heavily from the rest of the world, employment in the U.S. goods-producing sector has fallen. We construct a dynamic general equilibrium model with several mechanisms that could generate declining goods-sector employment: foreign borrowing, nonhomothetic preferences, and differential productivity growth across sectors. We find that only 15.1 percent of the decline in goods-sector employment from 1992 to 2012 stems from U.S. trade deficits; most of the decline is due to differential productivity growth. As the United States repays its debt, its trade balance will reverse, but goods-sector employment will continue to fall.


Published In: Journal of Political Economy (Vol. 126, No. 2, April 2018, pp. 761-796)

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