The New World

1
The New World Division of Labour
2
What, me worry

• Service trade revolution white collar jobs.
• Demise of manufacturing in industrialized
  countries.
• Ballooning trade deficits, especially with China.

3
U.S. Trade Deficits Revisited Broken Value Chain
Inflated by a factor of two to account for the
fact that that U.S. trade doubled during this
period. Source IMF Direction of Trade. U.S. data
used for transactions involving the U.S and
Japan-Korea-Singapore-Taiwan data used for
intra-Asian trade.
4
Comparative Advantage A Different View
5
The 64,000 Job Question Whither China and India?
Ironclad Law of Comparative Advantage
6
Hourly Compensation Relative to the U.S.
7
The 64,000 Job Question Whither China and India?

• Value added has been robust.
• The trade deficit is not much changed since
  pre-China days.
• Successful low-wage countries have become
  higher-cost, productivity-lagging competitors.

Ironclad Law of Comparative Advantage
8
The 64,000 Job Question Whither China and India?
Ironclad Law of Comparative Advantage
Institutions
9
Institutions Matter
(Kaufmann et. al, 1999)
10
Institutions Determine

• Determinant of Comparative Advantage Innovation
  Trajectories
• Make or Buy Integration vs. Outsourcing
• Project location Domestic or Offshore

11
Institutions Matter For Trade (Nunn, QJE, 2006)
Quality of a Countrys Institutions
b 0.40 t 6.37
Standardized
Complex, Contract-Intensive
Type of Good Exported
12
Property Rights View
13
Innovation Trajectories Wrong end of the Value
Chain?
14
Innovation Trajectories The American Dis
15
Manufacturing Whos Next?
16
Which End of the Comparative Advantage Stick?
17
The 64,000 Job Question Whither China and India?
Ironclad Law of Comparative Advantage