Global Imbalances and Structural Change in the United States

Authors

Timothy J. Kehoe, University of Minnesota
Kim J. Ruhl, The Pennsylvania State University
Joseph B. Steinberg, University of Toronto

Date of this Version

2018

Citation

Journal of Political Economy, 2018, vol. 126, no. 2

Comments

© 2018 by The University of Chicago.

Abstract

Since the early 1990s, as the United States borrowed heavily from the rest of the world, employment in the US 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 US 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.