Lecture 5. GLOBALIZATION AND COMPETITIVENESS Economics 1490 THE WORLD ECONOMY: GROWTH OR STAGNATION? with Professor Dale W. Jorgenson Lecture 5. GLOBALIZATION AND COMPETITIVENESS September 14, 2017 Harvard University Department of Economics Fall 2017

THE WORLD ECONOMY: GROWTH OR STAGNATION? A. Comparing Economies B. U.S. Crisis and Recovery C. European Slowdown D. Asian Economic Miracles E. Sustainability of Economic Growth F. World Economic Outlook

A. COMPARING ECONOMIES 1. Course Description 2. The World Economy since 1990 3. Purchasing Power Parities 4. Sources of Growth 5. Globalization and Competitiveness

GLOBALIZATION OF TRADE Steve Jobs Introduces the i-Phone The i-Phone Supply Chain All Roads Lead to China Shenzhen and Singapore, Taiwan, the U.S. Who Is Foxconn?

STEVE JOBS INTRODUCES THE iPHONE

HANDHELD

TEARDOWN OF THE iPHONE

PRODUCT OF GLOBAL TRADE

SHENZHEN

APPLE SUPPLY CHAIN The iPhone and the Software Are Designed by Apple. Components Are Produced Globally. The Final Assembly and Packaging Are Done in China. Most of the Value Is Added in the United States

FRAGMENTATION OF TRADE Trend 1: International Fragmentation of Production is Expanding. Trend 2: More Value-Added from High-Skilled Labor and Capital. Trend 3: Enhanced Specialization in High-Skilled Labor in High-Income Countries. Trend 4: Enhanced Specialization in Capital in Emerging Economies.

INTERNATIONALLY FRAGMENTED VALUE CHAIN Figure 15.1. Stylized representation of an internationally fragmented value chain

VALUE ADDED SHARES Table 15.1 Value added shares in final output of automotives from Germany (%).

ACCOUNTING FRAMEWORK FOR GLOBALVALUE CHAINS Figure 15.2 An accounting framework for global value chains

WORLD INPUT-OUTPUT TABLE Figure 15.3 Schematic outline of a World Input-Output Table (WIOT)

REGIONAL DISTRIBUTION OF VALUE ADDED Table 15.2 Regional value added distribution of final output of manufactures by country-of-completion

REGIONAL DISTRIBUTION OF VALUE ADDED (CONCLUDED) Table 15.2 Regional value added distribution of final output of manufactures by country-of-completion

GLOBALVALUE CHAIN INCOMES Figure 15.4 GVC Incomes in Advanced and Emerging Countries, All Manufactures, 1995–2011

GLOBAL VALUE CHAIN INCOMES, ANNUAL CHANGE Figure 15.4 GVC Incomes in Advanced and Emerging Countries, All Manufactures, 1995–2011

REGIONAL SHARES OF GVC INCOME Figure 15.5 Regional Shares in World GVC Income, All Manufactures, 1995–2011 (%)

COUNTRY GVC INCOMES

GVC INCOME BY PRODUCTION FACTOR

GVC INCOME BY SKILL LEVEL

FRAGMENTATION OF TRADE: SUMMARY The Domestic Share of GVC Income Has Declined and the Global Share Has Increased. Emerging Economies Have Increased Their Share of GVC Income, Relative to Advanced Economies. The Share of Capital in GVC Income Has Increased Relative to the Share of Labor. The Collapse of Trade in 2009, the Peak of the Crisis, Was Quickly Reversed in 2010.

GREAT TRADE COLLAPSE Historical Perspective Simultaneity of the Collapse in Different Countries Food, Oil, and Manufactures The Great Recession Composition of Trade

SIMULTANEITY OF THE GRADE TRADE COLLAPSE

GLOBALIZATION OF THE VALUE CHAIN Trade Grows Faster than Output and Also Collapses Faster than Output The Explanation is Globalization of the Supply Chain The i-Phone Example: All Roads Lead to China Value Added Approach to Trade: Trade Flows and Competitiveness