De-Industrialization and Trade

This paper extends the Dornbusch-Fisher-Samuelson (1977) model to explain de-industrialization and trade; this extension follows Baumol's (1967) observation on the negative correlation between the service sector and growth. We show that trade improves welfare through the exploitation of the comparative advantages but accelerates the shift toward service slowing down the rate of growth. Trade can decrease welfare if manufacturing activities with learning-by-doing move abroad. In this case, some experience is lost and all countries lose