Yolosing Case of Chapter 5: Trade in Information Technology and U.S. Economic Growth

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Closing Case of Chapter 5: Trade in Information Technology and U.S. Economic Growth

The case examines the link between the information technology sector and economic growth in the United States.  In the early 1980s, U.S. information technology companies shifted production of certain commodity-like components to low cost producers, and focused on producing only the highest value-added components.  Questions arose as to whether the trend was bad for the U.S. economy. 

 [1] During the 1990s and 2000s computer hardware companies in certain developed 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? 

Comments:

 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] What are the implications of the theory and data for (a) government policy in advanced nations such as the United States, and (b) the strategy of a firm in the computer industry, such as Dell or Apple Computer?

Comments:

New trade theory and Porter’s diamond of competitive advantage suggest that the success of the U.S. information technology sector is due in part to government...
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