NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Domestic Distortions and the Deindustrialization Hypothesis

Paul Krugman

NBER Working Paper No. 5473
Issued in March 1996
NBER Program(s):   ITI

It is widely believed that U.S. trade deficits have displaced workers from highly paid manufacturing jobs into less well-paid service employment, contributing to declining incomes for the nation as a whole. Although proponents of this view do not usually think of it this way, this analysis falls squarely into the `domestic distortions' framework pioneered by Jagdish Bhagwati. This paper models the deindustrialization hypothesis explicitly as a domestic distortions issue, and shows that while it makes conceptual sense it is of limited quantitative importance.

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Document Object Identifier (DOI): 10.3386/w5473

Published: Feenstra, Robert C., Gene M. Grossman, and Douglas A. Irwin. The political economy of trade policy: Papers in honor of Jagdish Bhagwati. Cambridge and London: MIT Press, 1996.

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