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Industry collapse has become an important phenomenon in China’s recent economic growthfluctuation.This paper develops a simple model to analyze this phenomenon.Our analysisfocuses on an external demand decline-caused industry collapse.The model reveals that thecombination of large-scale decline in external demand with a horizontal domestic supplycurve causes the domestic export industry to undergo a sharp decrease in output in a shortperiod of time, which further leads to a sharp decline in employment.The conventionalstabilization policy is less effective in coping with this sudden industry collapse.The ChineseGovernment needs to formulate an appropriate structural industry stabilization policy tocope with the sudden industry collapse, and, inparticular, to implement a direct employmentaid program to deal with unemployment resulting from the industry collapse.
Industry collapse has become an important phenomenon in China’s recent economic growth gain.This paper develops a simple model to analyze this phenomenon. Our analysis Focuses on an external demand decline-caused industry collapse. The model reveals that the combination of large-scale decline in external demand with a horizontal domestic supplycurve causes the domestic export industry undergo a sharp decrease in output in a short period of time, which further leads to a sharp decline in employment. conventional flightabilization policy is less effective in coping with this sudden industry collapse.The Chinese Government needs to formulate an appropriate structural industry stabilization policy tocope with the sudden industry collapse, and, inparticular, to implement a direct employment aid program to deal with unemployment resulting from the industry collapse.