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.