No abstract

A striking feature of the structural change literature is that, even though the U.S. economy is often used as a benchmark for calibration, the traditional model cannot account for the steep decline in manufacturing and rise in services in the United States since early 1980s (Buera and Kaboski, 2009). In order to solve the puzzle, this paper develops a three-sector model to evaluate various factors that could contribute to the structural transformation process from 1950 to 2005. The results show that, in addition to the traditional explanations, such as the non-homothetic preferences and sector-biased productivity progress, trade imbalance is another major source of structural change, which is able to explain about 38 percent of the overall labor share decrease in the American manufacturing. The quantitative predictions replicate the labor movements in the U.S. data, especially can properly explain the recent contraction of manufacturing employment share. This result is robust to different parameter values and alternative labor share measure. This paper is so far the first work that considers the intra-industry trade in the structural change literature which might support the argument that trade imbalances have substantial impact on the labor markets.JEL code: F16 F43 O14 O41 O51

This paper provides a conceptual and empirical framework for evaluating the effect of capital controls on long‐term economic growth. In a small open economy which relies on successful investment projects to provide capital goods, taking out short‐term loans has two contradictory impacts: (i) it reduces the interest costs of financing investment projects; and (ii) it also leads to larger asset losses in the scenario of short‐term debt run. In this work, we hypothesise that private financing decisions made by domestic investors are distorted towards excessive risk‐taking, leading to ineffective capital formation. Thus, capital control policies, particularly regulations on short‐term loans, can be socially beneficial as they alter the debt composition, promote capital formation and achieve a higher output level. Using a panel data set covering 77 countries from 1995 to 2009, we employ a system generalised method of moments (GMM) estimator to sequentially test three hypotheses and find strong empirical evidence that supports our theory.