Term
| 1) Ricardian and H-O theories, Factor-Price-Equalization Theorem, D-S analyses, Product-Life Cycle Theory and Theory of Competitive Advantage; their major findings, deficiencies, etc. |
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Definition
Theory: An abstraction of a real-world phenomenon, based on a set of simplifying assumption and close observation of human behavior over centuries.
The goal is to understand human behavior not to influence human behavior.
No theory is perfect and 100% comprehensive
A theory narrows down the focus for intensive analysis. |
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Term
| Steps involved in theoretical presentation |
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Definition
1. Objective
• Behavior of any economic agent is guided by the objective
2. A set of simplicity assumption
• Some of them may be unrealistic
3. Analytics
• Diagram(s)
• Mathematical equations
• Simply descriptive
4. Conclusions
5. Shortcomings
6. Remarks and Possible extension |
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Term
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Definition
1. Ricardian Theory of Comparative Advantage (David Ricardo, 1819): - Before this theory, Adam Smith introduced “Theory of Absolute Advantage” in 1776, but this theory had very limited scope to explain theory.
2. Theory of relative factor proportion (known as Heckscher-Ohlin Theory, 1993)
3. Factor-Price-equation Theorem
4. Demand-supply Model
5. Product Life-Cycle Theory (applicable to electronic product)
6. Porter’s Diamond- Theory of Competitive Advantage |
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Term
| objective of ‘Ricardian Theory of Comparative Advantage: Free Trade” |
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Definition
| To explain why trade occurs between countries and how they mutually benefit. |
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Term
| assumptions of Ricardian Theory of Comparative Advantage: Free Trade” |
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Definition
1.There are only two countries (USA & China) and two goods (X & Y).
2.Both countries are equal in size in terms of total supply of labor.
L ̅_USA = L ̅_CHINA
3.Production of each goods is characterized by neoclassical production function i.e. Constant return to scale.
4. Labor is the only variable input for both products. Capital (K) is fixed. No factor intensity.
5.Labor can freely move between production of two goods (X & Y) within each country.
6. Labor cannot move internationally. No international migration
7. Labor and Goods market are perfectly competitive within each country. Full employment in each country. Labor is equally skilled to produce both goods. No deficit or surplus of any good in each country.
8. There are no trade restrictions in any form or shape across two countries. No market imperfection or restrictions.
9. There is no shipping or transportation cost.
10.Consumers in both countries have identical taste for both (X & Y) goods.
11.There are differences in production technologies between countries. This is the reason for trade according to this theory. |
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Term
| analytics for Ricardian Theory of Comparative Advantage: Free Trade” |
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Definition
| let, US technology for X is superior to that of Y. CXChina has superior technology for Y over X. CX>CY |
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Term
| pre trade situation for Ricardian Theory of Comparative Advantage: Free Trade” |
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Definition
USA
1. produce and consume at pt A
(point of self-sufficiency or autarky)
Equilibrium is at A on µ0 USA
China
1.Produces and consume both at A’
(Point of self-sufficiency or autarky)
Equilibrium is at A’ on µ’0China |
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Term
| post- trade situation for Ricardian Theory of Comparative Advantage: Free Trade” |
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Definition
USA
Qx>Qy
• Produce Only X using L and no Y
(Complete Specialization in X)
• Production point will shift to P
• Consumption points move up to C
-Moves up from µ 0USA to µ 1USA
µ1> µo
• USA produce at P and consume at C
China
Qy>Qx
Produce Only Y using L and no X
(Complete specialization in Y)
Production point will shift to P’
Consumption points move up to C’
Moves up from µ 0China to µ 1China
µ'1> µ'o
Produce at P’ and consume at C’
both countries are better off due to free trade |
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Term
| conclusions of Ricardian Theory of Comparative Advantage: Free Trade” |
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Definition
Free trade beneficial for both countries
Trade is always balanced because of barters
Complete specialization is inevitable because L ̅_USA = L ̅_CHINA, if not equal in size there will be incomplete specialization. |
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Term
| shortcomings of Ricardian Theory of Comparative Advantage: Free Trade” |
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Definition
1. Uses of some overly simplistic or even unrealistic assumptions.
2. This is a static theory in the absence of technological progress.
3. In reality, trade is not always balanced because of transaction in two national currencies.
4. There are always transportation costs.
5. Consumers taste are dissimilar due to cultural reason
6. Absence of international migration is devoid of reality.
7. Does not take into account capital as a variable input
8. Does not take into consideration difference of resources (Capital and Labor) between countries. Both countries are not equal in size in terms of K and L. |
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Term
| remarks for Ricardian Theory of Comparative Advantage: Free Trade” |
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Definition
| Despite the limitations or short-comings it is still the ground breaking theory in trade. Free trade is a myth not a reality. |
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Term
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Definition
| To explain why nations should engage in free trade and how they mutually benefit from it. |
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Term
| assumptions of H-O Theory |
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Definition
1. There are only two countries and two goods
2. Two countries are unequal in size in terms of total supplies of capital and labor.
3. Production of both goods is characterized by neoclassical production function i.e. Constant return to scale
4. Both capital and labor are variable inputs for production of each good.
5. Both capital and labor can freely move between production of two goods within each country.
• Full employment of both capital and labor in each country
6. Capital and labor cannot move internationally
• No foreign investment
• No international migration
7. Both factor markets and goods markets are perfectly competitive in each country. Full use of K & L. World market and domestic market for both goods are perfectly competitive. General market equilibrium
8. International trade is completely unrestricted.
9. There is no shipping or transportation cost.
10. Consumers of both countries have identical taste for both goods.
11. Technology for each good is identical in both countries.
12. There is no factor- intensity reversal.
• A capital- intensive good will stay capital- intensive
• A labor-intensive good will stay labor-intensive |
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Term
| analytics of H - O theory |
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Definition
let x be capital intensive and y be labor intensive USA has larger total fixed supply of capital than that of labor. China has larger total fixed supply of labor than that of capital (remember supply of both is fixed)
• USA will have competitive advantage in x and China will have competitive advantage in y
• # 1 under H-O theory
• Conclusions:
o 1.Free trade is beneficial to both countries
o 2. Incomplete specialization
o 3. Balanced trade in both countries |
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Term
| shortcomings of H-O theory |
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Definition
• 1. Assumption of no international mobility of capital and labor is unrealistic
• 2. Assumption of no transportation costs is unrealistic
• 3. Implied assumption for homogeneous skills of labor is unrealistic |
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Term
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Definition
| - Besides its limitations it is more practical than the Ricardian theory because it considers both capital and labor as factors of production |
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Term
| COMPARE and CONTRAST THE TWO MAJOR THEORIES OF INTERNATIONAL TRADE |
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Definition
Ricardian Theory
1. Objective is to explain why nation should engage in free trade and how they benefit from it.
2. Labor id the variable input
• No factor-intensity
3. Difference in production technologies between countries are the reason for trade
4. Complete specialization is inevitable
5. Both countries gain from free trade
Free trade is a positive-sum-game in terms of net positive gain.
6. Trade is always balanced
H-O Theory
i. Objective is to explain why nation should engage in free trade and how they benefit from it.
ii. Both capital and labor are variable inputs
• Factor-intensity matter
iii. Differences in total factor-endowments are reason for trade
iv. Incomplete specialization is usual
v. Both Countries gain from free trade
Free trade is a positive-sum-game in term of net positive gain
vi. Trade is always Balanced |
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Term
| Factor Price Equalization Theorem (in 1948 by Paul Samulson) |
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Definition
| This is based on two other earlier extensions of H-O theory. |
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Term
| assumptions of Factor Price Equalization Theorem (in 1948 by Paul Samulson) |
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Definition
If two countries pursue free trade continuously for a very long time, wage-gap and capital-price gap will disappear between countries.
How long is the long-run? Maybe, indefinitely
PKUSA ≈ PKChina = No foreign investment
PLUSA ≈ PLChina = No international migration |
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Term
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Definition
| “processing of capital and labor with engineering technology to produce output” |
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Term
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Definition
“relationship of capital and labor with output embodied in technology.
o About how much output can be produced with given quantities of capital and labor
o In value-added method of production the cost of raw material is included in capital
o Production function- Q=f(k,l)
Q= output
K= capital
L= labor
o To produce output, There is a need for more K and L, because inputs are indispensable
Q=f(0,L)=0
Q=f(K,0)=0 |
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Term
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Definition
| o “response of output (Q) to increases in both K and L by the same % |
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Term
| Increasing return to scale- |
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Definition
• 1. Increasing RTS (return to scale)
o If K increases by 10% and L increases by 10% Q increases by more than 10%
• This is the outcome of technological progress as in investment in modern machinery and equipment
o Cost of production decreases
o Competitiveness of the firm increases
o Average total cost of production decreases
o Sales and profits increase |
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Term
| Total cost of production (TC) |
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Definition
= total fixed cost + total variable cost
• TFC>0 even when Q=0
• TVC= price of capital Pk – K + Pl – L(total work hours)
• As Q increases TVC increases
• ATC= TC/Q
o As Q increases ATC decreases under increasing RTS
o Graph 1 |
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Term
| . Constant return to scale: |
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Definition
o As K increases by 10% and L increases by 10%, Q increases by exactly 10%
Caused by machinery getting older
ATC is constant (does not go down), this causes the firm to lose some cost advantage, so (sales and profit) will be less than before
Graph 2 |
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Term
| • 3. Decreasing return to scale: |
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Definition
o As K increases by 10% and L increases by 10% Q rises by less than 10%
Happens when machinery gets very old (20-30 years old)
As Q increases ATC increases and company will have cost disadvantage
(sales and profit less than or equal to 0)
Requires reinvestment in the latest machinery and equipment that are products of scientific research and development |
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Term
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Definition
average profit xQ
= (P-ATC) xQ |
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Term
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Definition
o “ plots of pairs of outputs of two goods with efficient utilization of all currently K and L available (efficient full utilization of all K and L)”
Graph 3
Relocate more K and L for X moving them away from Y (limited supplies of K and L) (scarcity)
i. concave from below under constant RTS and
ii. Both K and L being mobile between production of X and Y
• assumption is that workers are equally efficient in producing x and y
graph 4 (can be a straight line) under constant return to scale, and labor being the only variable input (K cannot move only L)
• graph 3 and 4 illustrate the two standard trade theories |
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Term
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Definition
graph 5 ( not consistent with trade theories because a company enjoying the benefits of decreasing ATC)
• will monopolize the market by driving the competitors out of the market
• standard trade theories advocate competition (built on) |
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Term
| o competition is beautiful: (reasons) |
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Definition
i. cost efficiency will improve
ii. Quality of goods will improve because of rising competition
prices will fall
- the world market is perfectly competitive under which world price is fixed
o the company cannot increase price to raise profit. The only option to earn positive profits is by decreasing production costs
o perfect substitutes are available in world market and that is another reason price is fixed
o graph 6 (due to perfect substitutes being available)
o to survive in the world market, the company must be cost efficient, innovative, inventive and competitive. otherwise, it will collapse. |
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Term
| - Technological progress: |
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Definition
o “Production of more output of a good with the same quantities of K and L”
o Graph 7 and 8
o Graph 9 is best (same tech progress in x and y) |
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Term
| o The supply curve (graph 10) is the end product of |
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Definition
| the theory of firm behavior |
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Term
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Definition
o The consumers have limited budget to spend on x and y. how much x and y the consumer can buy depends on their prices as well
o Let B= fixed amout of budget
B= $200 to spend all
The consumer by assumption cannot spend over $200 because borrowing is not allowed. The consumer is also not allowed to spend less than $200 (assumption of theories), because savings is not allowed
Max Qx= B/Px
Max Qy= B/Py
Let Px = $20 and Py = $25
Max Qx= $200/$20 =10 units
Max Qy= $200/$25 = 8 units
Budget line (graph 11) (must spend entire $200) (always look at relative price if x is cheaper than y consumers will buy more x) (close substitutes not perfect substitutes)
Close substitutes give similar satisfaction not the same (tea and coffee) (sugar and sweet and low) |
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Term
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Definition
o Plots of combinations of two normal goods (x and y) given the same level of total satisfaction
o In macroeconomics we call it utility
o When price goes down we buy more, when it increases we buy less (normal good law of demand)
o Graph 12 and the assumptions listed under it |
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Term
| - Objective of a rational consumer |
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Definition
o “Maximize total utility from different bundles of two normal goods with a limited budget” (cannot over or under spend)
o Graph 13 (the sky is not the limit. The fixed budet is) |
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Term
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Definition
o Graph 14 ( c= point of tangency)
Slope of budget line = slope of indifference curve
- The end product of the theory of consumer behavior is the demand curve.
o Graph 15
o Goods market is graph 16 |
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Term
| - Key concepts in trade theories: |
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Definition
o Competitive advantage -
The basis for trade
Cx= unit production cost of x
Cy= unit production cost of y
Cx/Cy Cx>Cy (USA) Cx/Cy Cx• USA has competitive advantage in x and china has competitive advantage in y
o Complete specialization:
USA will produce only X and no Y
China will produce only Y and no X
o Incomplete specialization
USA produces more X and less Y
China produces more Y and less X
o Factor intensity
K to L ratio per unit of x and y
K/L(x)> K/L(y)
X is capital intensive and Y is labor intensive
o Relative factor abundance
K (bar) total supply of capital
L (bar) total supply of labor
K(bar)/ L(bar) USA K(bar)/ L(bar) China
K(bar)>L(bar) K(bar) USA is capital abundant, so as a result capital is cheaper than labor in the USA, and in China, labor is much cheaper (labor rate in china = 65 cents in USA = $29)
In theory trade is free and free trade is beneficial for both countries |
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Term
| look at graphs in study guide for all theories |
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Definition
| and from stylized facts down on FPE theorem |
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Term
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Definition
Let,
X is capital-intensive.
Y is Labor-intensive.
Let (K ̅/L ̅ )^USA > (K ̅/L ̅ )^China
USA has comparative advantage in X and China has comparative advantage in Y.
Real price of X: Px=Qy/QX(Exchange ratio)
If exchange ratio i.e., (Qy/QX) goes up, we are getting more Y in one unit of X, i.e. Y gets cheaper than X.
In contrast if Px=(Qy/Qx) goes down, X gets cheaper and Y gets more expensive.
Real price of Y: Py=(Qx/Qy) goes up, then |
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Term
| Before free trade for demand supply model |
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Definition
| Equilibrium Price of X in USA is less than equilibrium price of X in China |
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Term
| allow free trade for demand supply model |
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Definition
| Equilibrium price of X in China if greater than World Price of X (Pw) is higher than in USA
Pw>Px
Pw |
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Term
| Product Life Cycle Theory-By Raymond Vernon in 1967 |
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Definition
| Theory is very pertinent to electronic goods since electronic goods have limited life-cycle and duration of goods is made shorter by manufacturers deliberately to generate frequent & large sales revenue/cash flow. |
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Term
| phases of product life cycle in product life cycle theory |
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Definition
Phase 1: product conception, development, & introduction in domestic market.
If successful initially in domestic market, then it goes to...
A new product is concepted, invented, developed and marketed just to meet created demand.
Phase 2: production increases to meet domestic demand and then further expansion for exports. Exports = (production – domestic consumption) > 0
Output win start to rise to meet domestic and foreign demands.
Phase 3: Product growth maturation (no further expansion).
Product maturation and market saturation. Growth rate in output will slowdown.
Phase 4: Production decay
Output growth goes down and produced just enough to meet domestic demand.
Phase 5: If a company does not modify and improve products then they are better off by importing the same good from other countries below domestic production costs.
Output growth rate will be negative because of imitation and import. Producers will import its own original good to meet domestic demand.
look at written notes on printed study guide from class and graph |
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Term
| New Theory of National Competitiveness – (Also known as porter’s diamond) |
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Definition
Michael Porter of Harvard University introduced this analytical theory in 1990.
- Studying 100 industries of 10 different countries. The research question was “Why do countries excel in different types of industries?”
o For example: the USA excels in defense industry, Germany in precision instruments, Japan in autos, Switzerland in watches, China in hardware, India in software, etc.
Competitive advantage is not comparative advantage.
- Competitive Advantage must be acquired
- Comparative Advantage is given by nature or inherited if you will
Factor Conditions/Factor Endowments
- Total availability of capital, labor, raw materials, minerals, metals, talents, technologies, water, location, soil quality, climate, population, Infrastructures (Roads and highways, airports, seaports, telecommunication internet, educational institutions).
Market Conditions/Demand Conditions
- If the domestic market is highly competitive and then the customers are very demanding product quality must be higher and unit production cost must be lower.
Firm structures, rivalry, and strategies
Ownership structure (public/private), management structures (centralized/decentralized), owner-managed or agency-managed.
Competition among rival firms (the higher, the better). This leads to cost efficiency and quality gains.
Strategies: procurement strategy, Production strategy (what, how, how much), Marketing strategies
Related industries and Supporting Firms
- Financing for customers
- Suppliers of parts
- Local or foreign outsourcing of certain activities
- Repair services (stand by your product after the sale). Manufacturer’s warranty.
At the center of it all is the labor-productivity
All the components interact together directly or indirectly to contribute to labor productivity. |
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Term
| 2) Political Economy of Trade: |
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Definition
| Failure of FPET, tariff, quota, environmental standards, technical standards, health and safety standards, dumping (reasons, consequences, counter measures, and its various types), countervailing duty, their rationales and consequences, etc. |
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Term
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Definition
| FPET is not valid because trade is not free. This create rooms for foreign investment and international migration in the real world. |
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Term
| Forms of Trade Restrictions(TQEHTE) |
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Definition
1. Tariff
2. Quota
3. Environment Standards
4. Health and Safety Standards
5. Technical Standards
6. Export Tax and Subsidies
“The rising tide raises all boats”
*Free trade
“The rising tide of anger and populism (nationalism) wrecks all boats”
*Restricted trade ()
- Protectionist sentiments invites retaliations by other trading partner nations.
- Trade per se is not free. It becomes freer due to declining traditional trade restrictions since 1980.
- Domestic economic problems reverse Mercantilism |
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Term
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Definition
- Import duty on foreign goods collected at port of entry by customs officials
A – Ad Valorem Tariff: Tax in percentage on the cost/ value of an imported product (eg. 5%, 10%; more common)
duty on the value of an international good on %
- If import costs $1000 > with a 50% tariff > price is raised to $1500
- Consumers pay $500 in higher prices & gov. collects $500.
B – Specific Tariff: a fixed amount of duty per unity of an imported good. (for example a fixed amount of $100 per ton of imported steel. |
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Term
| 2) Quota- Non-Tariff Barriers |
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Definition
Import units are fixed numerically per year/period
Eg. US govt. allows 2 million cars imported per year.
- How many units of a good can be imported per year is set by the Federal Gov.
- Only quota licensees are allowed to import.
- Licenses are given to the highest bidder in the auction market or to friends/relatives/political donors by the current gov. |
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Term
| 3) Other Non-Tariff Barriers |
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Definition
- Health and safety standards
- Technical standards
- Environmental standards |
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Term
| 4) Export Tax- tax imposed on exports |
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Definition
- To minimize threat of foreign retaliation
- To reduce trade surplus with selected countries.
- To mitigate domestic scarcity
- To take away some portion of exporters super normal profit. |
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Term
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Definition
Negative taxes; instead of paying money to government, the government pays you to promote domestic production or to promote exports.
- Eg, Farm products
Agriculture in favor of trade restrictions and against trade restrictions are very convincing and powerful |
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Term
| Arguments for trade restrictions |
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Definition
1) Necessary to protect domestic industries from foreign competition
2) To promote domestic economic growth and employment
- Imports reduce domestic production
3) To save foreign currencies by reducing their leakages through imports
4) The gov. can mobilize tax revenues for investment in the home country.
Free trade kills jobs and growth at home. |
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Term
| Arguments against trade restrictions |
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Definition
1) Trade restrictions create market distortions.
2) Trade restrictions perpetuate cost inefficiency
- Domestic industries will have no motivation to improve efficiency.
3) Consumers have to pay higher prices
4) There will be net output loss (deadweight loss due to inefficiency)
5) Will trigger retaliations by other countries
6) A cycle of retaliations and counter-retaliations will make the world worse off.
If it trigger tariff war? |
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Term
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Definition
1) Domestic industries gain
2) Government gains from higher tax revenue
3) Consumers lose
4) Deadweight Loss (nobody gets it) as it evaporates due to inefficiency
5) Net gain is negative because of this deadweight loss ( net gain < 0 ) |
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Term
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Definition
o Imports decrease
o Price in the USA skyrockets
o Quota licensees reap abnormal profit (bribery increase)
o Consumers (price) & gov. (tax revenue) => both lose
o Quota licensees benefit
o No impact on domestic production.
- Quota is far worse than a tariff because:
o This increases corruption & smuggling to meet domestic scarcity |
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Term
| FPET breaks down due to various trade restrictions. If it breaks down we have to talk about: |
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Definition
1. International migration (result of labor market arbitage due to demand-supply mismatch in global markets
- can be temporary, permanent, repeat (seasonal workers)
- family reunification act enacted after vietnam war
2. Foreign investment
- foreign portfolio investment (stocks and bonds)
- Foreign direct investment- (FDI; establishing production subsidiaries in other countries.) These companies are called MNCs and are very large in terms of assets, market share and employment (100s of 1000s of people all over the world); 200 MNCs control 85% of US intl business |
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Term
| Factor-Price-Equalization Theorem: |
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Definition
PKUSA ≈ PKChina = No foreign investment
PLUSA ≈ PLChina = No international migration
- Trade is not free due to trade restrictions and unfair trade practices. So,
Pk us = (foreign investment)
PL ch = (international migration)
Rgp = WdRd + WfRf
Wd + Wf = 1 If they are optimum.
Wf Rf is affected by changes in exchange rate.
- Anything with the foreign component “ f “ in the equation, is effected by exchange rates.
- Domestic investing has no exchange rate risk. Only foreign investing outcomes (risk and return) are affected by changes in exchange rates.
- For exchange rate risk, required return on foreign investing must be higher than domestic return.
- For comparability, risk and return associated with foreign investing must be adjusted for exchange rate changes. Otherwise, you are comparing apples and oranges. |
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Term
| 4) Export Tax- tax imposed on exports |
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Definition
- To minimize threat of foreign retaliation
- To reduce trade surplus with selected countries.
- To mitigate domestic scarcity
- To take away some portion of exporters super normal profit. |
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Term
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Definition
Negative taxes; instead of paying money to government, the government pays you to promote domestic production or to promote exports.
- Eg, Farm products |
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Term
| Arguments for trade restrictions |
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Definition
1) Necessary to protect domestic industries from foreign competition
2) To promote domestic economic growth and employment
- Imports reduce domestic production
3) To save foreign currencies by reducing their leakages through imports
4) The gov. can mobilize tax revenues for investment in the home country.
Free trade kills jobs and growth at home.
Arguments in favor of trade restrictions and against trade restrictions are very convincing and powerful. |
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Term
| Arguments against trade restrictions |
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Definition
1) Trade restrictions create market distortions.
2) Trade restrictions perpetuate cost inefficiency
- Domestic industries will have no motivation to improve efficiency.
3) Consumers have to pay higher prices
4) There will be net output loss (deadweight loss due to inefficiency)
5) Will trigger retaliations by other countries
6) A cycle of retaliations and counter-retaliations will make the world worse off.
If it trigger tariff war?
Arguments in favor of trade restrictions and against trade restrictions are very convincing and powerful. |
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Term
| Ad Valorem Tariff (as related to tariff) |
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Definition
Tax in percentage on the cost/ value of an imported product (eg. 5%, 10%; more common)
duty on the value of an international good on %
- If import costs $1000 > with a 50% tariff > price is raised to $1500
- Consumers pay $500 in higher prices & gov. collects $500. |
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Term
| Specific Tariff ( as related to tariff) |
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Definition
| a fixed amount of duty per unity of an imported good. (for example a fixed amount of $100 per ton of imported steel. |
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Term
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Definition
1) Domestic industries gain
2) Government gains from higher tax revenue
3) Consumers lose
4) Deadweight Loss (nobody gets it) as it evaporates due to inefficiency
5) Net gain is negative because of this deadweight loss ( net gain < 0 )
look at diagram |
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Term
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Definition
o Imports decrease
o Price in the USA skyrockets
o Quota licensees reap abnormal profit (bribery increase)
o Consumers (price) & gov. (tax revenue) => both lose
o Quota licensees benefit
o No impact on domestic production.
- Quota is far worse than a tariff because:
o This increases corruption & smuggling to meet domestic scarcity |
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Term
| World Trade Organization (WTO) and its objectives |
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Definition
Was established in 1995 with 185 member countries. Chia entered into WTO in 2000.
- Objectives:
1) To promote free trade across all member countries.
2) To put all member trading nations gradually on the same level playing field.
3) To take punitive actions against unfair trade practices, subject to solid proof.
4) Any complaints to this effect must be submitted to WTO and no country can take unilateral action against another country for unfair trade practices.
- In reality trade is not yet % fair and fee. The playing field remains uneven for developing countries. |
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Term
| Typical unfair trade practices: |
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Definition
1) Dumping
2) Subsidies (negative taxes)
3) Currency Manipulation (China) |
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Term
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Definition
“To sell products in overseas markets at a price below average production cost and/or below domestic price.” Dumping is different from price discrimination across markets based on price elasticities of demand.
- Tokyo Singapore
Ed op < Ed op
P > P
In Tokyo demand is inelastic compare to Singapore, so domestic price in Tokyo is higher than Singapore. |
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Term
| - Objectives of dumping- reason |
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Definition
a. To introduce a new product in a foreign market.
b. To increase foreign market shares.
c. Once the market is established, price will be jacked up.
d. To drive competitors out of the market by selling below average production costs.
e. Ultimately the bottom line is to maximize profit by price discrimination. |
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Term
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Definition
o Predatory dumping (worst)
o Seasonal dumping
o Sporadic dumping |
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Term
| o Predatory dumping (worst) |
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Definition
| To sell goods below unit or average production costs to drive competitors out of the market even incurring loss. |
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Term
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Definition
USA does seasonal dumping in Latin America and Central America.
Unsold readymade garments are dumped at the end of the season to these countries. The revenues include: absence of demand in the next season, save storage cost, and save financing costs. |
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Term
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Definition
| Off and on dumping of seasonal specialty products. China does it in the USA and Europe during Christmas time. |
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Term
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Definition
o Consumers gain
o Domestic producers and consumers lose. |
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Term
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Definition
| Local firms of the country where the dumping occurs will be less competitive and may go out of business but the consumer will be benefited from lower prices, dumping will also have negative impact on the job market of the country. |
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Term
| COUNTER MEASURES for dumping |
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Definition
there is a need for developing anti-dumping laws and close monitoring. But the country cannot take unilateral action against the country that dumps. Complains have to be submitted world trade organization that will make final determination after investigation. If proved the country that dumps may have to pay financial penalties and the money receipt will be distributed to the firms that have been materially injured.
canadian lumber and US 20-30% tariff on it
Chinese crawfish |
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Term
2) Subsidies (negative taxes)
- Examples: |
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Definition
o China subsidizes steel to promote sales in USA.
o USA gives farm subsidies (agrification in Africa and Asia).
o Canada subsidizes lumber exports to USA by about 20%.
The US imposed 20% tariff on imports of Canadian lumber (this is called Countervailing duty)
- Note: subsides can be given directly in cash or indirectly in Kind. So, it is hard to exactly determine the extent of actual subsidy. |
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Term
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Definition
To increase export a country can increase direct and indirect subsidies to its product. To neutralize its negative effect ton domestic firms, the importing country will impose tarrif rate equal to the subsidy rate. USA and CANDA eg of lumber.
Consequences good for consumer but bad for domestic firms. |
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Term
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Definition
o Production subsidy
o Export subsidy |
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Term
3) Currency Manipulation (China)
- Example: |
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Definition
| o China’s exchange rate (yuan per dollar) is not determined in the foreign currency market by demand for and supply of dollars. The rate is determined by the gov. at 20% - 30% less than would be market rate. As a result, China’s export prices in US markets are 20% - 30% less. |
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Term
| International Migration – |
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Definition
Highly controversial issue
As of 2015 4% of the world population of 7.5 billion living in other countries as migrants. They remitted $442 billion to their countries of origins.
Migrants
a. Legal / documented
b. Illegal / undocumented (about 12 mil. Living in the US)
Other Classifications
a. Permanent migrants
b. Temporary (middle east)
c. Seasonal migrants (farming sectors)
Skill Specification
a. Highly skilled migrants
b. Semi-skilled migrants
c. Unskilled migrants
- It is the semi & unskilled migrants that the controversy is surrounding
- Manufacturing jobs are being lost or displaced in the USA due to changes due to industrial composition.
- High paying jobs are now degree and skill intensive
- USA is the largest recipient in the world of legal immigrants (about 800,000 accepted). |
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Term
Why do people migrate to other countries?
(push factors in country of origin) |
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Definition
1) High unemployment rate
2) Low wages/income
3) Political instability
4) Lack of economic and political freedom
5) Lack of law and order
6) Poor education and healthcare systems
7) high taxes |
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Term
Why do people migrate to other countries?
(pull factors in receiving countries) |
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Definition
1) Higher wages/income
2) Job opportunities
3) High quality infrastructure
4) Opportunities for professional development
5) Political & economic stability
6) Good law and order situation |
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Term
Why do people migrate to other countries?
- Perspective of labor-sending countries -Consequences |
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Definition
o positives
1) Reduce unemployment rate
2) Benefit from remittances in hard currencies
3) Foreign exchange rate reserve rises
4) Consumption and investment increase leading to higher national income
5) Return migrants transfer capital for investment.
o Negatives
6) Domestic inflation rate rises
7) Local currency appreciates
a. Exports decrease & imports increase |
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Term
| implications for developed and developing countries (IM) |
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Definition
Labor sending countries will receive remittances from the workers in foreign countries. The remittances will contribute to economic growth and employment in the labor sending countries. It will also increase the import capacity of those countries.
Labor receiving countries will fill in labor shortage and benefit from foreign talents ultimately they will contribute to economic growth and employment of those countries.
As a negative consequence, domestic workers will lose income due to decrease in wages rate and will also lose jobs because of high competition.
U.S. perspectives, illegal immigration, pragmatic immigration policy(select skilled paper)
, controversies, , current US stand, etc.
Chain migration should be stopped.
Labor-Exporting Country
- Suffer from brain drain
Labor-Receiving country
- Brainpower gain
The US receives labor > wage rate decreases > local employment decrease
- Thus, the US should follow Canada’s or Australia’s model for immigration (pragmatic immigration policy)
- They should have to take test to measure skilled to reduce unskilled workers |
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Term
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Definition
- About 12% of the world population (7.5 bil.)
- Visit other countries annually and spend close to 1 trillion. With multiplier effect, it contributes $5 trillion to the world economy.
- The US annually receives over $130 bil. From international tourism. There are some countries and small exotic islands depend heavily on income from international tourism.
- For example: Egypt 60% of its GDP is contributed by income from international tourism.
- Provide business connection |
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Term
| - Purposes of international tourism-BREDCT |
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Definition
o Recreation
o Business
o Cultural exchanges (cultural exchange program)
o Education exchange program (Fulbright scholars program)
o To see friends and relatives
o Diplomacy |
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Term
| - Major determinants of arrivals of foreign tourist to a destination country |
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Definition
o Economic growth in the home country increases then # of visitors increases
o Distance between countries
o Exchange rate of the destination country
Now, the US dollar is very strong against euro
o Airfare goes up then the # of visitors decreases
o Hotel rates go up then # of visitors decreases
o Political instability in the destination country goes up then the # of visitors decreases
o Fear of terrorism increases then the # of visitors decrease
o Visa restrictions ^ > N decreases
o Number of historical places is high then N ^
o Recreation opportunities are high then N ^
o Ski resorts and casinos goes up then N ^ |
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Term
| - Beneficiaries of international tourism in the destination country |
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Definition
o Transportation industry
o Hospitality industry
o Aleve the local economy |
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Term
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Definition
|
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Term
| • Foreign portfolio investment (FPI) |
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Definition
- Investment in foreign securities for short and medium terms.
- “don’t put all eggs in one basket.” In Markowitz Theory of Portfolio Diversification (1958).
o Diversity across different types of securities issued by different categories of industries.
- Global portfolio means investment in both domestic and foreign securities. This is more efficient and rewarding than domestic investing due to greater diversification and world-wide choices for investment. |
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Term
| • Foreign direct investment (FDI) |
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Definition
“A composite of production, technologies, production plants, capital, employment, marketing, management, etc.”
- Investment in production plans abroad by multinational corporations (MNCs) for long-term.
China is the largest recipient of FDI in the world (Robust Economic Growth of China).
1973 2014
FDI $25 million $20 trillion
Subsidiaries – over 10,000
Employment - 100 mil. Employees
- Top 10 US multinational corporation depend on foreign market for sales and profit ranging from 50% - 90%.
- 200 US MNCs dominate 85% of US international business
- This for the long-run and less liquid as compared to portfolio investment.
- Additional risks associated with this are exchange rate risk and political risk.
- So what are the objectives of MNCs relating to FDI |
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Term
| A multinational corporation (MNC) |
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Definition
| is usually a large corporation incorporated in one country which produces or sells goods or services in various countries. The two main characteristics of MNCs are their large size and the fact that their worldwide activities are centrally controlled by the parent companies. |
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Term
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Definition
1) To take advantages of foreign cheap labor and talents.
2) To have access to foreign raw materials, minerals, metals, and other natural resources.
3) To expand overseas market shares.
4) To reduce shipping costs and exchange rate risks being close to foreign customers.
5) To get around quota and tariffs
6) To take advantage of lower environmental standards.
7) To take advantage of lower tax rates.
8) To have access to foreign capital market to meet local operating costs.
9) To provide benefits to home country consumers.
10) To maximize stock holder’s wealth.
*** The ultimate goal is to maximize total profit by reducing production cost because the MNCs do not have pricing power in the brutally competitive world market. |
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Term
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Definition
1) Exporting of goods
2) Mergers and acquisitions
3) Joint venture with local partners
4) Franchising |
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Term
| - Objectives (of developing countries to entice FDI) |
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Definition
1) To alleviate hard currencies and technological constraints.
2) To promote economic growth and employment.
3) To have access to the latest technologies.
4) To develop managerial skills of local employees. |
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Term
| - How do developing countries seek to entice foreign MNCs? |
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Definition
1) Giving tax benefits and even tax holidays for 5 – 10 years.
2) Providing access to local banks and capital market for local borrowing.
3) Keeping lower environmental standards.
4) Allowing a large % of profit for repatriation to MNC’s home countries. |
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Term
- What factors MNCs should weigh in before deciding a foreign destination for establishing subsidies?
(location factors) |
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Definition
1) Availability of cheap labor and talents
2) Availability of natural resources
3) Infrastructures (roads & highways, seaports, airports etc.)
4) Tax laws and incentives
5) Judicial system
6) Law and order situation
7) Size of the market (measured by the size of the emerging middle class)
8) Environmental standards
9) Quality of education
10) Political stability
11) Macroeconomic stability
12) Extent of globalization of the local economy
13) Local people’s attitudes towards foreigners
14) Access to local banks and capital market
15) Provision for profit repatriation
16) Constitutional guarantee for property, other asset, and even security of life.
17) Level of corruption (positives and negatives)
18) Political system
19) Economic philosophy (market economy or controlled)
20) Language and historical types |
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Term
| - Experiences of developing countries about MNCs |
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Definition
Mixed experience about FDI
1) Tax evasion by underreporting profit through inflated costs.
Transfer pricing
Head office -> Subsidiaries
Buy many things from the head office and head office inflates costs
2) Bulk of the profit is repatriated in collusion with the head office instead of reinvesting in developing countries.
3) Illicit capital outflows by MNCs through under invoicing of exports and over invoicing of imports
4) No access to the latest technologies
5) No local hiring in the management positions
6) Pollution rises
7) Corruption rises
8) Undue political influences of MNCs
9) Local interest rates go up to the detriment of local firms (unemployment rise)
10) Inflow of hard currencies through FDI will appreciate local currencies. So, exports of local companies will go down & imports increase. Unemployment rate rises among the local people
o In summary, FDI has domino effects in developing countries tantalizing the local people then frustrating them. |
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Term
| How MNCs ought to manage exchange rate risk and political risk: |
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Definition
Success depends on effective management of these 2 types of risk
Measures to manage exchange rate risk:
1. Diversify market shares in multiple key currencies
a. $, Euro, Pound, Yen, Australian Dollar, Yuan, Peso, Canadian Dollar, Swiss Franc, etc.
2. Geographic diversification of subsidiaries in key areas of business
3. Quote price in more than 1 currency
a. 50% in $ & 50% in euro to reduce exchange rate risk
4. Diversify portfolio investment in multiple key currencies creating a currency cocktail.
5. Change input mix
a. Use more local input and less foreign raw materials
6. Locate subsidiary close to customers (Toyota)
7. Relocate subsidiaries from countries of unstable currency to countries of stable currency |
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Term
| Measures to manage political risk: |
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Definition
8. Avoid investing in bama republics
9. Phase out investment from political unstable countries
a. Moving from places like Venezuela or middle east >>> Asia
10. Gather information on unfolding political development from US embassies there.
11. Buy insurance against political risk
a. Shipping for example
12. Avoid breeding grounds of terrorism
13. Study the psychological profile of the head of the gov.
a. Abrupt policy changes |
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Term
|
Definition
Outsourcing gained momentum after 9/11 2001
“Labor and capital complement each other”
- Outsourcing is contracting out services and production of certain goods to specialized (foreign) third parties when the production and services are not cost effective in the home country
- The prime objective is to minimize production costs, to maximize profit and to increase efficiency
USA Vietnam
$23 20 cents
JC Penny’s, Dillard, GAP, etc. outsource readymade garments
Examples
Telemarketing
Debt collection
Backdoor office activities
Accounting services
- Beneficiaries of Outsourcing
o Winners
Consumers
Foreign workers
Stockholders of outsourcers
o Losers
Domestic workers
- 9/11 2001
o Foreign talents are reluctant to migrate to USA for visa restrictions and possible terrorism.
USA India
Capital-abundant Labor-abundant
& labor deficient Capital-deficient
< Labor < |
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Term
|
Definition
Here foreign companies bring capital and technology to the US for US specialized third party to produce certain products and services
o This is to have access to the latest technology
o To reduce distribution costs
o To minimize exchange rate risk
Outsourcing Insourcing
Job loss Job gain
Net gains > 0
The pain is 100% concentrated on the unemployed
Example: $1 outsourced to India
1) Indian company and workers 30 cents
2) US company and stockholders 70 cents |
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Term
|
Definition
It is about procurement of finished consumer goods from cheaper foreign sources through supply chain management.
- Walmartification
o Job loss
o Local stores go out of business
o Air and noise pollution |
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Term
| I) Production Function (an engineering concept) |
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Definition
A) Q = f (K,L)
1) Tech & Raw materials are included in K
2) Both K & L are indispensable & compliment each other. There is no substitutability
3) If Q = f (0, L); then Q = 0 & If Q = f (K, 0); then Q = 0 |
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Term
|
Definition
| – {ouput response to a proportionate increase (increase by same %) in all factors of production} |
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Term
| A) Constant Return to Scale (CRS) |
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Definition
1) As K & L each increase by x%, Q increases by x%. (Same %)
2) Implications for AC → It will be constant → TVC/Q = AVC
3) Fixed cost only matters if there is uncertainty – there always is. |
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Term
| B) Increasing Return to Scale (IRS) |
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Definition
1) As K & L each increase by x%, Q increases by > %.
2) When a firm experiences IRS (like Microsoft), it creates a natural monopoly which inspires anti trust lawsuits. While accused of manipulating the market, Microsoft claims that if it were a true monopoly, it would be able to raise prices.
3) AC is going down b/c ↑ in technology. Microsoft is sometimes able to give out free software because when their MC = 0, then the price can be 0. |
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Term
| C) Decreasing Return to Scale (DRS) |
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Definition
1) As K & L each increase by x%, Q increases by < %.
2) Implications for AC → It will increase → TVC/Q = AVC
3) Examples of DRS
i New & old machinery has DRS – currently used has IRS
ii Productivity concerning human life cycle. Ages 25-35 are the most productive |
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Term
| III) Production Frontier – |
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Definition
| A trace of various point of coordinates of 2 goods produced efficiently using all the currently available factors of production with the existing technology. |
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Term
| A) Production Frontier can be a straight line under |
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Definition
CRS & with only 1 variable input
1) For a straight line, slope is always constant
2) Using all K & L, you can produce 1 of the 2 points |
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Term
| B) PF can be concave from below under |
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Definition
DRS w/ 2 variable factors of production K & L.
1) If there is equal technological progress in both x & y, it will shift outward in a parallel fashion in that case.
i But progress may not be equal
2) When you can produce more with the same K & L, production cost ↓ & you can sell cheaper and make more profit
i That’s why companies invest so heavily in R & D
ii Small companies can’t afford such risks. |
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Term
| C) PF can be concave underneath with |
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Definition
IRS with 2 variable factors of production.
1) IRS will drive out competition & capture the entire market. |
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Term
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Definition
| A) How much K & L are needed to produce one unit of output is embodied in engineering technology. In linear programming, you weed out inefficient techniques. You can have several production techniques for 1 good.If it falls b/w 2 techniques, you divide production b/w the techniques. If it is closer to 1 than the other, you should use more of 1 than the other. In this course, we will choose 1 pt & assume that its efficient. |
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Term
|
Definition
– the basis for foreign trade
A) Take the ratios of Cx & Cy
1) USA China
i (Cx/Cy) < (Cx/Cy)
<1 >1
2) The US has comparative advantage in x & China has comparative advantage in y. If you allow trade b/w the U.S. & China, the U.S. will import L & China will import K.
3) Total Supply of L & L are fixed. Only by reducing production of 1 can you produce more of the other.
i USA China
Specialization in X Specialization in Y
(Total Supply of K & L are fixed) (Total Supply of K & L are fixed)
Qx↑ & Qy↓ Qx↑ & Qy↓
x←←←K & L←←←y x→→→ K & L→→→y
Qx – consump x = export of x Qy – consump y = export of y
01. >0 >0
Qy – consump y = import of y Qx – consump x = import of x
01. <0 <0
now you are getting cheaper y now you are getting cheaper x |
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Term
|
Definition
1) Price & Qd are inversely related.
i As P↑ → Qd↓ OR As P↓ → Qd↑ Negative Relationship
2) The goods that satisfy the law of demand are normal good.
i The demand curve is derived from consumer behaviors. |
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Term
|
Definition
1) Price & Qs are directly related
i As P↑ → Qs↑ OR As P↓ → Qs↓ Positive Relationship
2) Supply curve comes model? of total profit.
i П will rise when you can sell for more
3) Supply curve is derived from the behavior of business firms.
i To understand behavior, you have to know objectives & constraints
ii Businesses want more for more
4) Goods market |
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Term
| VIII) Dimensions of Globalization |
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Definition
A) Tourism Trade
B) Int’l Migration
C) Int’l Tourism
D) Foreign Investment
E) √ Cultural Exchange |
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Term
|
Definition
i Exchanges of goods across countries, subset of IB
ii Autarky = No trade situation = Closed Economy
iii Trading = Open Economy |
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Term
| X) Why should nations engage in free trade? |
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Definition
A) Free trade is beneficial to all countries
B) Free trade promotes competition resulting in reduced prices & increased quality
C) Free trade promotes efficiency in allocation of resources, production, & consumption
D) Free trade promotes world peace & harmony
1) Trading countries must exchange ideas
2) Diplomacy can reward & punish |
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Term
| 3) Free Trade is a positive sum game in terms of net gains |
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Definition
i Free trade is beneficial to all countries in terms of net gains.
Total gain is higher than total loss
ii If the U.S. follows free trade, net gain will be +ve w/ winners & losers in each country
Doesn’t mean every individual benefits from free trade.
iii Free trade is not subject to any restriction, regulations & gov’t interventions in any shape or form.
Despite a movement towards free trade, it doesn’t exist in a pure form.
Autarky < Restricted < Free Trade |
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Term
| XI) Why does trade take place? (Reasons for trade) |
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Definition
A) Int’l differences in technology
B) Int’l differences in factor endowments
1) Resources like land, labor, & capital
C) Int’l differences in consumer tastes. |
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Term
| XII) Sources of gains from free trade |
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Definition
A) Specialization in production
B) Int’l exchanges of goods |
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Term
| XIII) Key Concepts in Foreign Trade |
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Definition
A) Factor abundance
B) Technological superiority
C) Factor intensity
D) Specialization
E) Comparative Advantage |
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Term
|
Definition
capital-to-labor ratio per unit of output
Given:
(K/L)x (K/L)y
>1 <1
Therefore, x has more capital intensity than y & y has more labor intensity than x.
X is a capital intensive good & y is a labor intensive good.
X uses more capital than labor/unit of output.
Y uses more labor than capital/ unit of output. |
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Term
|
Definition
Pk = unit price of capital
PL = unit price of labor
Cx = unit production cost of x
Cy = unit production cost of y |
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Term
|
Definition
| Given:
(Kbar/Lbar)u.s.a. (Kbar/Lbar)Mexico
Where Kbar (K) = total supply of capital & Lbar (L) = total supply of labor
The U.S. has more capital than labor.
Mexico has more labor than capital.
The U.S. is capital abundant & labor deficient.
Mexico is capital deficient & labor abundant.
Knowing:
x is capital intensive & y is labor intensive &
The U.S. has more capital than labor & Mexico has more labor than capital:
USA Mexico
K > L Kbar>Lbar K< L Kbar < Lbar
→PKPL (labor is cheaper)
Cx < Cy (x production is cheaper) Cx > Cy (y production is cheaper)
Where:
Pk = unit price of capital
PL = unit price of labor
Cx = unit production cost of x
Cy = unit production cost of y |
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Term
|
Definition
Comparative advantage is the basis for trade between countries.
Ratio of unit production cost (Cx/Cy)U.S. (Cx/Cy)Mexico
<1 >1
The U.S. has comparative advantage in x & comparative disadvantage in y.
Mexico has comparative advantage in y & comparative disadvantage in x.
*Allowing free trade between the U.S. & Mexico will inspire specialization in goods by internal limited resource reallocations. |
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Term
| Compare & Contrast b/w Ricardian & Hecksler-Olin |
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Definition
The between countries, so (in the interests of simplicity) the H-O model has identical production technology everywhere. Ricardo considered a single factor of production (labour) and would not have been able to produce comparative advantage without technological differences between countries (all nations would become autarkies at various stages of development, with no reason to trade with each other). The H-O model removed technology variations but introduced variable capital endowments, recreating endogenously the inter-country variation of labour productivity that Ricardo had imposed exogenously. With international variations in the capital endowment (i.e. infrastructure) and goods requiring different factor proportions, Ricardo's comparative advantage emerges as a profit-maximizing solution of capitalist's choices from within the model's equations. (The decision capital owners are faced with is between investments in differing production technologies: The H-O model assumes capital is privately held.)
As mentioned above, the HO model differs from Ricardo's most drastically by assuming that the production functions available in each country are identical. The production functions simply convert labour and capital input to output.
This assumption means that producing the same output of either commodity could be done with the same level of capital and labour in either country. Actually, it would be inefficient to actually use the same balance in either country (because of the relative availability of either input factor) but, in principle this would be possible. Another way of saying this is that the per-capita productivity is the same in both countries in the same technology with identical amounts of capital. |
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Term
| Product Life Cycle Theory |
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Definition
1960 Raymond Vernon
Like life stages (Childhood, Adulthood, Adolescence, Young Adulthood, Maturity, & Retirement), product life cycle is characterized by the following stages:
Stage I: New Product development & Sales in the domestic market (conception, dev’pment, & intro)
(New products result from investments in R&D. They are initially tested in the domestic mkt.)
Stage II: (Growth Stage) Exponential growth & sales in foreign markets as foreign demand springs. (Product expansion above domestic consumption)
Stage III: Maturation of export as foreign countries begin to produce the same good. (Mass production)
Stage IV: Domestic production declines & starts importing from other countries (imitation)
(Countries should import when goods can be imported for less than they can be produced domestically. This country invested heavily in R&D, so production cost is higher)
Product Life Cycle is getting shorter due to product upgrading & to increase cash inflow. How long will a car last these days? 4-5 years. Goods expire sooner to increase cash inflow, which decreases product life cylce. Certain goods must be upgraded to stay competitive in the mkt like cell phones, cameras, & PCs.
Fianancial implication: cash flow increases
Economic implication: employment increases |
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Term
| Home Country Perspective (IM) |
|
Definition
Positive Factors
1. To benefit from remittances of foreign exchange.
2. To reduce employment pressures at home
Negative Factors
3. Brain drain is detrimental to the migrants` home countries. After receiving education at the taxpayers’ money, they do not contribute to their own countries once left back.
4. Remittances cause appreciation of local currency – results in reduced exports & higher imports. |
|
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Term
| Host Country Perspectives (IM) |
|
Definition
Positive Factors
1. To meet labor shortages in the host country – jobs may exist that locals don’t want (toilets)
2. To benefit from skilled immigrant (Dr., engineer – the US is getting some services w/out paying for their education, but collecting taxes from their work)
3. To benefit from business connections provided by immigrants to their countries of origin.
Negative Factors
4. Unemployment among local unskilled workers may increase & their average wage may decrease.
5. Welfare burden increases – Some Mexicans hop the border & taxpayers pay birth bill.
6. Law & order deteriorates resulting in higher law enforcement cost (Miami)
Is immigration good for the U.S.? both good & bad, but the net economic gain in positive. |
|
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Term
| What should be a pragmatic immigration policy for the USA? |
|
Definition
1. Allow illegal immigrants to stay for a limited time within which they have to meet certain criteria.
2. Introduce guest worker program – bring people, selectively.
3. Prospective immigrants must pass some eligibility tests (literacy & skill)
4. Attract immigrants in their prime age (20-35)
5. This would increase temporary work visas & avoid the consequences of $500B in deportation & rotten fruits from lack of workers. |
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Term
|
Definition
Contracting out production & services to specialized foreign parties to reduce cost to improve quality & to improve reliability of products is an old phenomenon so more can be produced @ lower cost.
Accounting jobs – tax filings, telemarketing, x-ray report reading, back office jobs, data entry
Usa is focusing on core competencies & the rest are being outsourced to India, Ireland, Israel. Is this good or bad?
Job Loss (--)
Consumers (+)
Profit (+)
Reinvestment creates jobs (+)
In this age of globalization, people must aquire new skills & a good education. Jobs are becommming more knowledge intensive. Some studies:
__Jobs lost __Jobs Created = __Net Gain |
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Term
|
Definition
Foreign companies also contact in services to US (creates jobs). Gov’t can give tax incentives for retraining displaced workers. Should we blame immigration & outsourcing for job loss in the US? Blame is out of place, shutting it down, the US would collapse, corporations are profiting & consumers are gaining, with a +ve net gain. The USA should invest in R&D, education, tax incentive for innovations w/out these we can’t maintain our current position.
GM Ford, Chrysler
Resturcture, raise production, produce relevant goods (what people want)
-need to be lean
Porter’s Diamond
-asked for gov’t subsidy – parasites have a limited life span.
Autos need to be fuel efficient & sleek.
Role played by innovations, management/marketing in globalization. |
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