《国际贸易》芬斯特拉人大练习题答案.pdf

Foreign Offshoring of Goods and Services 1 Consider an offshoring model in which the labor hours of four activities in the United States and Mexico are as follows Note that labor hours in Mexico are four times those in the United States refl ecting Mexico s lower productivity Also note that the ratio of high skilled to low skilled labor used in each activity increases as we move to the right from 1 5 in assembly to 10 1 in R Home expands the set of activities that it does at Home to include incre mentally higher value activities whereas the set of high value offshored activities shrinks c Draw relative labor supply and demand diagrams for Home and Foreign show ing the effect of this change What happens to the relative wage in each coun try Answer An expansion in the set of production activities done at Home to in clude higher value ones increases the average skill intensity of Home produc tion This increases the relative demand for high skilled labor at Home Simi larly because Foreign ceases to do its least skill intensive activities the average S 56Solutions Chapter 7 Foreign Offshoring of Goods and Services Component AssemblyProduction Offi ce ServicesR U S United States skill intensity in Foreign increases and hence the relative demand for high skilled labor increases See the following fi gure 3 Consider a U S fi rm s production of automobiles including R as a result U S output increases to Y2so there are gains for the United States 4 Consider the model of a fi rm that produces fi nal goods using R this can be done by multi plying the fi rst equation by 4 and subtracting the second equation from it to get 20 for components Minus 0 for R D Equals 20 0 answer It follows that WL WL 20 100 150 13 3 so that the wage for low skilled labor falls by 13 3 when the price of components falls by 10 To fi nd the change in the high skilled wage we can take this solution and plug it back into the equation for the change in wages in R D to get 0 13 3 so it follows that WH WH 13 3 10 40 3 3 The wage for high skilled labor increases by 3 3 when the price of components falls by 10 c What has happened to the relative wage of high skilled low skilled labor Does this match the predictions of the offshoring model in this chapter Answer With the wage for high skilled labor going up and the wage for low skilled labor going down it follows that the relative wage of high skilled labor WH WL also rises Equivalently the relative wage of low skilled labor which is WL WH falls This is as predicted by our model in this chapter where a fall in the relative price of components or a rise in the relative price of R D bene fi ts high skilled labor 5 Consider the model of a fi rm that produces fi nal goods using R D and components as inputs with cost data as follows Components Total costs of production PC QC 100 Earnings of high skilled labor WH HC 25 Earnings of low skilled labor WL LC 25 Earnings of capital R KC 50 Share of total costs paid to high skilled labor 20 100 25 Share of total costs paid to low skilled labor 25 100 25 R D Total costs of R D PR QR 100 Earnings of high skilled labor WH HR 30 Earnings of low skilled labor WL LR 20 Earnings of capital R KR 50 Share of total costs paid to high skilled labor 30 100 30 Share of total costs paid to low skilled labor 20 100 20 WH WH 40 100 WH WH 40 100 WL WL 160 100 WL WL 10 100 WL WL 150 100 10 100 40 100 WH WH S 60Solutions Chapter 7 Foreign Offshoring of Goods and Services a Which factor s is components intensive Which factor s is research intensive Answer Component production is intensive in the use of low skilled labor be cause the cost share of low skilled labor in components 25 exceeds the cost share of low skilled labor in R D 20 Similarly R D is intensive in the use of high skilled labor because the cost share of high skilled labor in R D 30 exceeds the cost share of high skilled labor in components 25 Notice that capital is used equally in both activities so it is not intensive in either one b Suppose that due to the opening of trade the relative price of R D in creases PR PR 10 whereas the price of components stays unchanged PC PC 0 Calculate the change in the relative wage of high skilled and low skilled labor Answer Following the same hint that was given for problem 4 we end up with the following two equations 0 for components 10 for R D Multiplying the components equation by 4 and the R D equation by 5 and subtracting them we get 0 for components Minus 50 for R D Equals 50 0 answer It follows that WH WH 50 100 50 100 so that the wage for high skilled labor rises by 100 when the price of R D rises by 10 To fi nd the change in the low skilled wage we can take this solution and plug it back into the equation for the change in wages in components to get 0 100 so it follows that WL WL 100 The wage for low skilled labor falls by 100 when the price of R D rises by 10 c What has happened to the relative wage of high skilled low skilled labor How does this result compare with problem 4 and explain why it is similar or different Answer With the wage for high skilled labor going up and the wage for low skilled labor going down it follows that the relative wage of high skilled labor WH WL also rises Equivalently the relative wage of low skilled labor which is WL WH falls The change in the relative wages is the same as what we found in problem 4 because a fall in the relative price of components or a rise in the relative price of R D has the same effects to benefi t high skilled labor Wage changes found in this problem are larger because the cost shares in the two ac tivities are more similar than those in problem 4 25 100 WL WL 25 100 50 100 WH WH 100 100 WL WL 150 100 WH WH 100 100 WL WL 100 100 WH WH 20 100 WL WL 30 100 WH WH 25 100 WL WL 25 100 WH WH Solutions Chapter 7 Foreign Offshoring of Goods and ServicesS 61 6 The diagram below shows what happened to the relative wage and relative demand for high skilled labor in the U S manufacturing sector during the 1990s These points are plotted using the data from Figures 7 5 and 7 6 a What must have happened to the demand and supply curves to explain this change in relative wage and relative employment Answer The relative nonproduction wage increased signifi cantly in U S man ufacturing between 1990 and 2001 but the relative employment of nonproduc tion labor did not change much This pattern is consistent with an outward shift in relative demand and an inward shift in relative supply for nonproduction workers As such relative demand for high skilled labor has increased shifted right and the relative supply of high skilled labor has decreased shifted left See the fi gure on the next page b Why do you think the demand and supply curves shifted this way Hint Think about where the workers who leave manufacturing might be going Answer The increase in relative demand is a continuation of what we already saw in the 1980s due to high skilled biased technologic change and offshoring The reduction in relative supply is new however One explanation for this is that high skilled workers were pulled out of manufacturing and into services because many high skill intensive service sectors have been expanding S 62Solutions Chapter 7 Foreign Offshoring of Goods and Services 2000 1 80 1 78 1 76 1 74 1 72 1 70 1 68 1 66 1 64 1 62 1 60 0 20 250 30 350 4 Nonproduction Production Labor Nonproduction Production Wage 0 450 50 550 6 2001 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 7 Read the article about offshoring by General Motors located online at htm and answer a What goods or services are being offshored by GM Answer GM is offshoring its information technology IT services this article is not talking about the offshoring of manufacturing b What company was named a tier one supplier by GM What do you already know about this company from Side Bar Offshoring Microsoft Windows in this chapter Answer The Indian company Wipro was named a tier one supplier to GM Wipro already manages Microsoft s computer resources during Seattle s evening hours as described in a Side Bar in this chapter c Why do you think that GM was willing to spend this money on offshoring Answer GM s decision may refl ect the decreasing costs to high tech offshoring relative to the costs of doing the same functions in house due to increased international competition from countries such as India Even though GM is los ing money right now it still makes sense to offshore IT services if these can be done cheaper abroad By doing so GM will save money and hopefully restore its profi tability 8 Read the following excerpt and using what you have learned in this chapter discuss how offshoring creates opportunities for the countries involved Source Excerpted from Steven Pearlstein Still Short of the Offshoring Ideal The Wash ington Post March 12 2004 Sudhakar Shenoy chief executive of Information Management Consultants in Reston makes an ef fective pitch for offshoring Several years ago IMC saw a market developing for software that would allow biotech companies to make better and faster use of the new human genome research Doing it here Shenoy calculated would Solutions Chapter 7 Foreign Offshoring of Goods and ServicesS 63 2000 1 80 1 78 1 76 1 74 1 72 1 70 1 68 1 66 1 64 1 62 1 60 0 20 250 30 350 4 Nonproduction Production Labor Nonproduction Production Wage 0 450 50 550 6 2001 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Supply 2001 Supply 1990 Demand 2001 Demand 1990 cost several million dollars which he fi gured would have priced the product too high for most customers But by having a small group of engineers at IMC s Indian subsidiary do much of the coding work he was able to bring the project in at 500 000 The result IMC now has a thriving line of business in bioinformatics with major clients and a growing payroll of six fi gure PhDs here And there are more engineers than ever six here for every one in India But that s only part of the good news story In Pune where IMC s Indian operations are located an airport under construction will require lots of U S engineering design and electronics At the same time IMC s Indian engineers who earned annual salaries of 3 500 a decade ago now command up to 12 000 enough to buy all manner of imported consumer goods Answer By offshoring software in India IMC is able to pass the cost savings to biotech companies researching the human genome Moreover the derived de mand from Indian engineers by successful companies like IMC attributes to higher salaries for the local talents In addition the need for reliable infrastruc ture resulting from a growing economy boosted by companies such as IMC has led to the demand for U S engineering design and electronics 9 The quote from the 2004 Economic Report of the President at the beginning of the chapter generated a lot of controversy that year as discussed at the beginning of sec tion 3 in the chapter The chairman of the Council N Gregory Mankiw made the following additional comments in a speech while presenting the report Outsourc ing is just a new way of doing international trade More things are tradable than were tradable in the past and that s a good thing Those statements quickly led to reactions from both Democratic and Republican members of Congress Tom Daschle a Democrat and the Senate minority leader said If this is the administration s position they owe an apology to every worker in America Dennis Hastert a Republican and speaker of the House said Outsourc ing can be a problem for American workers and the American economy John Kerry the Democratic presidential candidate referred to businesses that offshored as Benedict Arnold corporations In response Mankiw clarifi ed his earlier com ments My lack of clarity left the wrong impression that I praised the loss of U S jobs Although you might believe that these statements are just a squabble between politicians trying to score points during the presidential campaign it is still worth try ing to sort out who gains and who loses from offshoring a Why does Mankiw say that outsourcing is a good thing Who is it good for in the United States Are there overall gains for the United States Explain with a diagram Answer Mankiw says that offshoring is a good thing because there are over all gains from the trade of production activities relative to autarky As seen in Figure 7 10 both countries benefi t by specializing in certain production activi ties and offshoring others Trade in production activities allows for higher levels of output employing the same amount of domestic inputs However within each country these gains may not be spread evenly across workers of different skill lev els as changes in the number of tasks offshored lead to changes in the relative wage of high skilled workers b Later in this chapter Paul Samuelson is quoted as saying that there is no neces sary surplus of winning over losings due to offshoring Use Figure 7 12 to care fully explain why Samuelson says this Answer Samuelson points out that loss due to offshoring may occur as a result of the deterioration in a country s terms of trade That is from one offshoring equilibrium to another there are not necessarily gains since an increase in the rel ative price of a production activity hurts the importer of that activity Of note S 64Solutions Chapter 7 Foreign Offshoring of Goods and Services though gains from offshoring are always greater than the situation with no trade 10 In Figure 7 11 we saw that a fall in the relative price of components leads to an in crease in the amount of components imported but that the amount of R D ex ported from Home does not necessarily increase To explore this further complete the following a Let the relative price of components continue to fall in Figure 7 11 and show in a graph what happens to the equilibrium point on the isoquant for the fi nal good Answer As the relative price of components continues to fall the use of com ponents in the fi nal good increases Imports of components increase as the equi librium production point moves out to the fl atter portion of the fi nal good iso quant and the level of fi nal good output increases but at a diminishing rate due to diminishing returns in production See the following fi gure b Now draw another graph that has the relative price of components on the ver tical axis and the imports of components on the horizontal axis Start at the no trade relative price of components where imports are zero Then label the var ious world relative prices of components on the vertical axis and graph the quantity of imports at each price Can we be sure that the import demand curve slopes downwards Answer As the relative price of components decreases from the Home autarky level Home components imports as well as the fi nal goods produced increase As long as incremental components are still useful in fi nal good production com ponents imports will increase as their relative price decreases which is guaran teed by the shape of the isoquants See the following fi gure Solutions Chapter 7 Foreign Offshoring of Goods and ServicesS 65 Components Slope PC PR A Slope PC PR W1 Slope PC PR W2 C C B A Y1 Y2 Y0 B R D c Now draw a new graph that has the relative price of R D on the vertical axis and the exports of R D on the horizontal axis Start at the no trade rela tive price of R D where exports are zero Then label the various world relative prices of R D on the vertical axis and graph the quantity of exports at each price When the relative price of R D is high enough what do you no tice about the export supply curve Answer See the following fi gure As the relative price of R D increases from its autarky level Home specializes further in R D services and exports increase However for a suffi ciently high relative price import demand in the rest of the world diminishes as countries abroad substitute components for R D in fi nal good production As a result as Home approaches full specialization in R D exports of that activity approach zero S 66Solutions Chapter 7 Foreign Offshoring of Goods and Services Home Components Imports PC PR A PC PR PC PR W1 PC PR W2 Home R D Exports PR PC A PR PC PR PC W1 PR PC W2 11 Why might it be relatively easier for an undeveloped country like India to export ser vice activities through offshoring than to participate in the global economy by pro ducing manufacturing components Answer Because offshoring of manufactures involves the trade of intermediate in puts across several borders there is an extra cost associated with transporting the goods Therefore a country must have good infrastructures such as developed road ways to participate in the global economy In India for example communications technology developed rapidly whereas transportation developed more slowly which allowed the South Asian country to parta