Feensrta R C Integration of Trade and Disintegration Term Paper

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Feensrta, R.C. "Integration of Trade and Disintegration of Production in the Global Economy." Journal of Economic Perspectives, 12:4, 1998, pp. 31-50.

The article is about globalization and particularly how manufacturing operations are becoming global. The article describes how organizations are increasingly able to move their production processes overseas, with the author describing this as "causing a breakdown in the vertically integrated mode of production."

The author argues that foreign outsourcing has increased since the 1970s based on several different measures.

The author then looks at two implications of the changes: the impact on wages and the implications for labor policy.

Agreements

The author distinguishes between final products and intermediate products, arguing that this point is often neglected, which I think is true. Manufacturing in other nations does not always mean moving complete operations to that nation, it means using certain parts from that nation that become intermediate in the final product. This intermediate product is sold back to the international supplier for a certain cost, which does not recognize the full cost of the final item. It is with the final item that the value is added. Also recognized, is the importance between recognizing that services are also provided internationally, rather than just products.

Disagreements

One disagreement with the paper is the effect on labor skills, with it argued that in the home countries unskilled labor demand will decrease, as unskilled labor will move to foreign operations. As factories increasingly move internationally, countries being used as factories will recognize that this is one of their primary industries. With an increased focus on this, unskilled laborers will become skilled laborers. With this may come expected increased pay for workers and for some, this may drive employment back to the international company where unskilled labor is still largely available.

Data Limitations

The data makes use of GDP figures and export figures. What is missing from the data are figures from organizations making use of international manufacturing. While there were some examples given, such as the operations of manufacturing Barbie Dolls, further information from specific organizations would have given a better perspective of how individual companies are making use of international outsourcing.

2. Summers, L.H. "Distinguished Lecture on Economics in Government: Reflections on Managing Global Integration." Journal of Economic Perspectives, 13:2, 1999, pp. 3-18.

Article Summary

The article deals with the subject of the effect of globalization on America. Special interest is given to the effect of outsourcing on the wages of skilled and unskilled workers. The article provides a view of the issue from an economics and a government policy viewpoint, offering perspectives on how government can view the situation and what government actions can impact on the situation.

Agreements

The author makes an important point about the effect on labor in the developed country. It is recognized that while from the U.S. perspective, it would be called low wage unskilled labor, in the international country it is higher wage skilled labor. In this way, wealth is actually distributed to the international company, more than they could obtain without international operations and employees work is also becomes more skilled. With outsourcing a growing trend, it could be seen how this could eventually result in an equalization of skills and labor.

Disagreements

The article considers public policy and supports the idea that outsourcing and individual trade should not harm the individual, and that individuals that are harmed should be compensated. I see an important factor missing in this idea. Looking at the issue as a broader issue instead of at the individual level, outsourcing is an action taken by organizations and designed to benefit the organization. The important question is, what does this benefited organization do. Do they expand further creating more jobs? Does the wage rate for their employees increase? Or do they retain higher profits? Do the share prices increase and thus effect the wealth of all shareholders? With this broader level, we can see that the focus should be on the organization since it is the organization that has opted to use outsourcing strategies. The government then should perhaps focus on looking at how organizations respond to their cost-savings, rather than try to compensate those individuals harmed by outsourcing. Essentially, if the organization is benefited, these benefits should flow through to the country and the individuals of that country. It is the organization that is responsible for this.

Data Limitations

The report makes use of economic data and economic considerations. It looks at a broad picture with data such as GDP and labor rates offering a view that include all effecting factors. What is not able to be determined is the actual effect of one particular variable, outsourcing. The effects in both the home country and the international country are based on figures that include all possible effects.

3. Rauch, J.E. "Business and Social Networks in International Trade." Journal of Economic Literature, XXXIX, December 2001, pp. 1177-1203.

Article Summary

In the article, the author looks at why international trade has not increased as much as it was predicted, being that trade barriers are close to zero. The author argues that informal trade barriers are the cause, where international trade barriers include "weak enforcement of international contracts" and "inadequate information about international trading opportunities."

The author argues that business and social networks that operate across national borders can overcome these barriers.

Agreements believe the author is correct in determining that business and social networks are an important tool that can be used to counteract the informal barriers present. The case studies show how it works in practice and the solution is also reasonable and relevant to the problem, getting to the base cause of the problem, lack of understanding and information. I think this approach is important, seeing things where the human level of business is taken into account, rather than relying on economic and business models.

Disagreements

The research focuses on case studies and examples of how informal trade barriers exist and how they can be overcome. The problem I have with this is how the data is interpreted. I see this practical data as far more useful than theoretical data. I believe that with a focus on creating standard information that an organization or nation could use to determine how informal barriers may be effecting their particular situation and how business and social networks could be used to rectify problems, the study would have a more useful focus.

Data Limitations

The data makes use of various case studies that show how the informal trade barriers exist and how they can be overcome. This information is also combined and statistically analyzed in an attempt to make definite conclusions. With its basis in case studies, I see the research as important but having more practical implications for how organizations can manage these potential problems, rather than having definite theoretical implications.

4. Lustig, N. "Life is not Easy: Mexico's Quest for Stability and Growth." Journal of Economic Perspectives. 15:1, 2001, pp. 85-106.

Article Summary

The article follows changes in Mexico's economy with it being shown how Mexico has changed with "the market to replace regulation, private ownership to replace public ownership, and competition... To replace protection."

Agreements

The article describes how Mexico has evolved to its current state, with shocks to the Mexican economy and numerous setbacks all contributing to its current position, with the process being described as one of "economic modernization." I think this view correctly shows how the process of adapting a nation to changing times is not a simple one and how a long-term view must be taken.

Disagreements

The author believes that the Mexican economy is now on its way up, with it being said that sound macroeconomic policy has paid off and that the benefits of integrating with the U.S. are showing up. While it is recognized that there are problems, it is argued that the future looks bright. This statement is difficult to agree with. Given that the world economy is continuing to undergo major changes, economic stability may not be so close for Mexico. Mexico also bases much of its hope on having U.S. companies moving factory operations, but with the international economy still adjusting to reduced trade barriers and with other countries as accessible as Mexico, the future for Mexico may not be so clear.

Data Limitations

The paper is based on sound data, both economically and business data, with the data well-combined. This data however, is based on looking back at Mexico and it is often easy to see what has happened in retrospect. What is missing is data offering a better view of future trends. With the international economy changing so much, it cannot be expected that the future will be stable and for a real analysis, data offering predictions of the future need to be utilized.

5. Krugman, P. "What Should Trade Negotiators Negotiate About?" Journal of Economic Literature, XXXV, March 1997, pp. 113-120.

Article Summary

This article looks at trade negotiations and how countries have opened up their borders…[continue]

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