Case: International Trade Theory

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Case Discussion – Chapter 5

Trade in Information Technology and U.S. Economic Growth

1. During the 1990s and 2000s computer hardware companies in certain develop nations progressively moved the production of hardware components offshore, often outsourcing them to producers in developing nations. What does international trade theory suggest about the implications of this trend for economic growth in those developed nations?

Answer
 When production of commodity-like components began to shift from the U.S. to low cost locations in the early 1980s, many experts were concerned about potential jobs losses.  Research showed however, that while some manufacturing jobs were indeed lost, the lower costs inputs brought prices down, and actually prompted a more rapid diffusion of the technology.  This in turn, generated greater productivity in the workplace, and a boom in the computer services and software industries, where many new jobs were created.  According to international trade theory, developing nations also stood to benefit from the trend as the outsourcing by American companies created new jobs and greater economic growth in those markets.  

2. Is the experience of the United States, as described in the case, consistent with the predictions of international trade theory?

Answer

International trade theory would suggest that the lower prices of computers resulting from outsourcing means that the average American consumer could consume more goods and services, thereby boosting their economic well – being of course. In the average America has seen his job disappear, he may not agree. Furthermore, in the case of the computer industry, the location of R&D may be a factor. Currently, most R&D takes place in technology hot spots within the country. Shifting R&D activities would eliminate or at least minimize the benefits associated with being in a hot spot.

3. What are the implications of the theory and data (a)...
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