Feedback: Case Discussion #2:

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 Porters diamond of competitive advantage suggest that the
success of the U.S. information technology sector is due in part to government
policies. By maintaining policies designed to facilitate growth in the industry, the
U.S. can encourage success. Please note that for firms like Dell and Apple
Computer the rapid diffusion of the technology intensified demand for innovation,
increased the value of first-mover advantages, and encouraged government
lobbying.