The Decline of the U.S. Manufacturing: An Explanation from Structural Change

In this paper, I develop a three-sector model that is able to fully explain the postwar structural transformation process experienced by the United States from 1950 to 2005. The model have multiple consumption goods which are produced using dierent factor intensities. The closed economy version of the model estimates the trends from 1950 to 1980 very well, but is not able to traces the labor movements since 1980s. An intuitive idea that would improves the performance of the model is to connect the soaring trade decits with the decline of manufacture sector since then. The modification to the model is simple: keeping the trade balance/GDP ratio as in the data, I evaluate the model to estimate the labor allocations. The results of this trade balance augmented model replicate the structural change over the whole sample period at great accuracy. This result might support the argument that trade imbalances have a substantial eect on the labor markets