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Do Developed and Developing Countries Compete Head to Head in High Tech?

Author

Listed:
  • Robert Z. Lawrence

    (Harvard University, John F. Kennedy School of Government)

  • Lawrence Edward

    (University of Cape Town)

Abstract

Concerns that (1) growth in developing countries could worsen the US terms of trade and (2) that increased US trade with developing countries will increase US wage inequality both implicitly reflect the assumption that goods produced in the United States and developing countries are close substitutes and that specialization is incomplete. In this paper we show on the contrary that there are distinctive patterns of international specialization and that developed and developing countries export fundamentally different products, especially those classified as high tech. Judged by export shares, the United States and developing countries specialize in quite different product categories that, for the most part, do not overlap. Moreover, even when exports are classified in the same category, there are large and systematic differences in unit values that suggest the products made by developed and developing countries are not very close substitutes-developed country products are far more sophisticated. This generalization is already recognized in the literature but it does not hold for all types of products. Export unit values of developed and developing countries of primary commodity-intensive products are typically quite similar. Unit values of standardized (low-tech) manufactured products exported by developed and developing countries are somewhat similar. By contrast, the medium- and high-tech manufactured exports of developed and developing countries differ greatly. This finding has important implications. While measures of across product specialization suggest China and other Asian economies have been moving into high-tech exports, the within-product unit value measures indicate they are doing so in the least sophisticated market segments and the gap in unit values between their exports and those of developed countries has not narrowed over time. These findings shed light on the paradoxical finding, exemplified by computers and electronics, that US-manufactured imports from developing countries are concentrated in US industries, which employ relatively high shares of skilled American workers. They help explain why America’s nonoil terms of trade have improved and suggest that recently declining relative import prices from developing countries may not produced significant wage inequality in the United States. Finally they suggest that inferring competitive trends based on trade balances in products classified as "high tech" or "advanced" can be highly misleading.

Suggested Citation

  • Robert Z. Lawrence & Lawrence Edward, 2010. "Do Developed and Developing Countries Compete Head to Head in High Tech?," Working Paper Series WP10-8, Peterson Institute for International Economics.
  • Handle: RePEc:iie:wpaper:wp10-8
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    References listed on IDEAS

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    Cited by:

    1. Robert Z. Lawrence, 2013. "Association of Southeast Asian Nations, People's Republic of China, and India Growth and the Rest of the World : The Role of Trade," Development Economics Working Papers 23409, East Asian Bureau of Economic Research.
    2. Cong S. Pham & Xuan Nguyen & Pasquale Sgro & Xueli Tang, 2017. "Has China Displaced its Competitors in High†tech Trade?," The World Economy, Wiley Blackwell, vol. 40(8), pages 1569-1596, August.
    3. Alexandra Bykova & Mahdi Ghodsi & Robert Stehrer, 2018. "The Evolution of Trade Unit Values: A Measurement on Quality," wiiw Research Reports 431, The Vienna Institute for International Economic Studies, wiiw.
    4. Robert Z. Lawrence, 2012. "How Can Trade Policy Help America Compete?," Policy Briefs PB12-21, Peterson Institute for International Economics.
    5. Xiaonan Liu & Hayley Chouinard, 2013. "The Effects of Product Quality on Net Trade," Working Papers 2013-11, School of Economic Sciences, Washington State University.
    6. Ewa Mińska‐Struzik, 2014. "Rozważania nad aktualnością tradycyjnej teorii handlu międzynarodowego," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1, pages 73-95.

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    More about this item

    Keywords

    Terms of Trade; Technology;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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