Scribd
Upload
146 views

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

The document discusses how the production of information technology hardware components moved offshore from the US starting in the 1980s. This initially led to concerns that high-paying manufacturing jobs were being lost. However, research found that offshoring production made hardware about 20% cheaper. These lower prices supported more business and household IT investment in the US. As a result, IT diffusion and productivity growth increased faster than normal in the US from 1995-2002. Some estimates attribute 0.3% annual GDP growth during this period to offshore production. Additionally, US IT jobs in software and services grew faster than the overall economy as demand increased. Therefore, offshoring production may have benefited the US economy more than any job losses cost.

Uploaded by

Rio Stephen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
146 views

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

The document discusses how the production of information technology hardware components moved offshore from the US starting in the 1980s. This initially led to concerns that high-paying manufacturing jobs were being lost. However, research found that offshoring production made hardware about 20% cheaper. These lower prices supported more business and household IT investment in the US. As a result, IT diffusion and productivity growth increased faster than normal in the US from 1995-2002. Some estimates attribute 0.3% annual GDP growth during this period to offshore production. Additionally, US IT jobs in software and services grew faster than the overall economy as demand increased. Therefore, offshoring production may have benefited the US economy more than any job losses cost.

Uploaded by

Rio Stephen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

CLOSING CASE

Trade in Information Technology and U.S. Economic Growth

Entrepreneurial enterprises in the United States invented most of the information technology
that we use today, including computer and communications hardware, software, and services.
In the 1960s and 1970s, companies like IBM and DEC, which developed first mainframe and
then midrange computers, led the information technology sector. In the 1980s, the locus of
growth in the sector shifted to personal computers and the innovations of companies like Intel,
Apple, IBM, Dell, and Compaq, which helped develop the mass market for the product. Along
the way, however, something happened to this uniquely American industry—it started to move
the production of hardware offshore.

In the early 1980s production of “commodity components” for computers such as dynamic
random access memory chips (DRAMs) migrated to low-cost producers in Japan, and then
later to Taiwan and Korea. Soon hard disk drives, display screens, keyboards, computer mice,
and a host of other components were outsourced to foreign manufacturers. By the early
2000s, American factories were specializing in making only the highest value components,
such as the microprocessors made by Intel, and in final assembly (Dell, for example, assembles
PCs at two North American facilities). Just about every other component was made overseas
—because it cost less to do so. There was a lot of hand-wringing among politicians and
journalists about the possible negative implication for the U.S. economy of this trend. According
to the critics, high-paying manufacturing jobs in the information technology sector were being
exported to foreign producers.

Was this trend bad for the U.S. economy, as the critics claimed? According to research,
the globalization of production made information technology hardware about 20 percent less
expensive than it would otherwise have been. The price declines supported additional
investments in information technology by businesses and households. Because they were
getting cheaper, computers diffused throughout the United States faster. In turn, the rapid
diffusion of information technology translated into faster productivity growth as businesses
used computers to streamline process. Between 1995 and 2002, productivity grew by 2.8
percent per annum in the United States, well above the historic norm. According to calculations
by academic researchers, some 0.3 percent per annum of this growth could be attributed
directly to the reduced prices of information technology hardware made possible by the move
to offshore production. In turn, the 0.3 percent per annum gain in productivity over 1995 to
2002 resulted in an additional $230 billion in accumulated gross domestic product in the United
States. In short, some argue that the American economy grew at a faster rate precisely
because production of information technology hardware was shifted to foreigners.
There is also evidence that the reduced price for hardware made possible by international
trade created a boom in jobs in two related industries—computer software and services.
During the 1990s the number of information technology jobs in the United States grew by 22
percent, twice the rate of job creation in the economy as a whole, and this at a time when
manufacturing information technology jobs were moving offshore. The growth could partly be
attributed to robust demand for computer software and services within the United States, and
partly due to demand for software and services from foreigners, including those same
foreigners who were now making much of the hardware. In sum, some argue that buying
computer hardware from foreigners, as opposed to making it in the United States, had a
significant positive impact upon the U.S. economy that outweighed any adverse effects from
job losses in the manufacturing sector.
Case Discussion Questions
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?
2. Is the experience of the United States, as described in the case, consistent with the
predictions of international trade theory?
3. 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?

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy