Globalization and Increasing Returns: Implications for the U.S. Computer Industry

Over the last twenty years, the computer industry has become global with respect to computer production as well as computer use, a trend which has raised concerns among U.S. policymakers of hollowing out the industry and exporting employment. This paper uses the framework of increasing returns to analyze the issue. It classifies market segments within the computer industry, shows how the advent of the personal computer created these segments, examines how this change in the structure of the industry led to the evolution of an Asia-Pacific production network, identifies company and country leadership in this network, and evaluates the implications for the United States. It shows that some manufacturing employment, mainly in the decreasing returns segments of the industry, has shifted to the Asia-Pacific region. However, it also shows that employment in some manufacturing segments and in software and services, which are increasing returns or hybrid markets, has increased dramatically in the United States. It concludes that the global division of labor between the United States and both companies and countries in the Asia-Pacific region has been largely positive in that it has supported the continuing U.S. leadership position in the global computer industry.