Reverse technological specialization, late resource curse and inequality: the US perspective

This paper underscores the urgent need for a revitalized and modern industrial policy to address unsustainable trends in the U.S. trade and manufacturing sectors over the past two decades, which have significant implications for growth and prosperity. As industrial policy gains renewed focus, emerging challenges can be addressed through new and efficient approaches. A series of empirical analyses reveal a decline in the trade balance and rising import multipliers within machinery, equipment, and high-tech (HT) industries, indicating increased import penetration and a concerning reversal in technological specialization. Additionally, the share of manufacturing in GDP has decreased, particularly in machinery, equipment, and HT sectors, while the GDP share of energy – especially refined petroleum products – has risen, suggesting a Dutch disease-type effect. Labor share and employment multipliers within U.S. manufacturing have also declined, accompanied by structural shifts in the consumption share of wages. These findings underscore the importance of adopting targeted, innovative industrial policies to address functional income inequality, counter adverse sectoral shifts, and support long-term economic stability. JEL CODES: C67; D57; O25; D33