Kim J. Ruhl

Recent great depressions: Aggregate growth in New Zealand and Switzerland, 1973–2000

Throughout the 1950s and 60s real GDP per working‐age person in New Zealand and Switzerland grew at rates at or above the 2 percent trend growth rate of the United States. Between 1973 and 2000, however, real GDP per working‐age person in both countries has fallen a cumulative 30 percent below the trend growth path. Our growth accounting attributes almost all of the changes in output growth to changes in the growth of total factor productivity (TFP), and not to changes in labor or capital accumulation. A calibrated dynamic general equilibrium model that takes TFP as exogenous can explain almost the entire decline in relative output in both New Zealand and Switzerland. To understand the recent growth experiences in New Zealand and Switzerland, it is necessary to understand why TFP growth rates have fallen so much.

Global Imbalances and Structural Change in the United States

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.

Trade Adjustment Dynamics and the Welfare Gains from Trade

We build a micro-founded two-country dynamic general equilibrium model in which trade responds more to a cut in tariffs in the long run than in the short run. The model introduces a time element to the fixed-variable cost trade-off in a heterogeneous producer trade model. Thus, the dynamics of aggregate trade adjustment arise from producer-level decisions to invest in lowering their future variable export costs. The model is calibrated to match salient features of new exporter growth and provides a new estimate of the exporting technology. At the micro level, we find that new exporters commonly incur substantial losses in the first three years in the export market and that export profits are backloaded. At the macro level, the slow export expansion at the producer level leads to sluggishness in the aggregate response of exports to a change in tariffs, with a long-run trade elasticity that is 2.9 times the short-run trade elasticity. We estimate the welfare gains from trade from a cut in tariffs, taking into account the transition period. While the intensity of trade expands slowly, consumption overshoots its new steady-state level, so the welfare gains are almost 15 times larger than the long-run change in consumption. Models without this dynamic export decision underestimate the gains to lowering tariffs, particularly when constrained to also match the gradual expansion of aggregate trade flows.

NEW EXPORTER DYNAMICS: New Exporter Dynamics

We document that new exporters initially export small amounts, grow gradually, and are most likely to exit the export market in their first few years. We find that the standard sunk‐cost model cannot replicate these new exporter dynamics: New exporters grow too large too quickly and live too long. In a modified sunk‐cost model that can account for these facts, the entry costs needed to match the data are three times smaller than in the sunk‐cost model. Dynamic models with richer plant‐level heterogeneity are needed.