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From page 421... ... TECHNOLOGY, STRUCTURAL CHANGE, AND TRADE 421 world economy just as the world economy has become more im- portant for the United States. We have become much more vulner- able to global economic developments. Read the entire page →
From page 422... ... 422 TRADE, TAX, AND DIFFUSION POLICY ISSUES The coincidence of widespread layoffs, slowing real income growth and the deterioration in U.S. trade balances, coupled with burgeoning foreign debt, has raised questions about our ability to sustain high living standards in the future. Read the entire page →
From page 423... ... TECHNOLOGY, STRUCTURAL CHANGE, AND TRADE 423 focus increasingly on possible links between innovation and trade policy on the one hand, and structural changes that affect produc- tive technology on the other. The debate over "industrial policy" has, according to some ex- perts, called attention to the long-term, structural enhancements to technological innovation and national income growth that some nations (such as Japan) Read the entire page →
From page 424... ... 424 TRADE, TAX, AND DIFFUSION POLICY ISSUES icy, with special attention to linkages involving technology and structural change. Obviously, since this is a vast subject area teem- ing with competing models, hypotheses, and sociopolitical as- sumptions, we can attempt here only the most summary treatment of the issues involves. Read the entire page →
From page 425... ... TECHNOLOGY, STRUCTURAL CHANGE, AND TRADE 425 tify and categorize the so-called factors of production? Basically, by whichever means are convenient. Read the entire page →
From page 426... ... 426 TRADE, TAX, AND DIFFUSION POLICY ISSUES dict" or "explain" via the classical model. All other changes will appear as surprise alterations in the underlying production func- tion. Read the entire page →
From page 427... ... TECHNOLOGY, STRUCTURAL CHANGE, AND TRADE 427 research, managerial changes, and social and attitudinal transfor- mations that we cannot hope to quantify directly. Market Failure. Read the entire page →
From page 428... ... 428 TRADE, TAX, AND DIFFUSION POLICY ISSUES For our purposes, what is important about this aspect of the classical model is that it tells us very little about the presence or absence of externalities if we don't really understand the produc- tive process in question. Thus we return to the mysterious x- factor input mentioned earlier. Read the entire page →
From page 429... ... TECHNOLOGY, STRUCTURAL CHANGE, AND TRADE 429 would be a distorting simplification. Those in the former school may indeed advocate state remedies to externalities when and where they can be quantified according to the classical model. Read the entire page →
From page 430... ... 430 TRADE, TAX, AND DIFFUSION POLICY ISSUES rists admit do not hold universally. There always seem to be out- puts, such as the service value of real estate owned in downtown Manhattan, that are not easily duplicable. Read the entire page →
From page 431... ... TECHNOLOGY, STRUCTURAL CHANGE, AND TRADE 431 be negative externalities associated with innovation rents? If we subsidize the former (say, skill and research inputs) Read the entire page →
From page 432... ... 432 TRADE, TAX, AND DIFFUSION POLICY ISSUES trade within a nation maximizes national welfare. It is also well known for its famous Ricardian Law of Comparative Advantage, which asserts that every nation benefits from trade, no matter what the absolute advantage or disadvantage of its productive fac- tors, as long as the domestic relative prices of its goods and services differ, in the absence of trade, from world prices. Read the entire page →
From page 433... ... TECHNOLOGY, STRUCTURAL CHANGE, AND TRADE 433 as Indonesian workers because, in addition to the return on "pure"' labor, U.S. workers also get a return on various types of human capital inputs such as skill, organization, education, and so forth. Read the entire page →
From page 434... ... 434 TRADE, TAX, AND DIFFUSION POLICY ISSUES defense leaders who benefit the most from stronger trading part- ners to the extent they are also allies (a rationale that might well apply to U.S. trade policy during the Cold War) Read the entire page →
From page 435... ... TECHNOLOGY, STRUCTURAL CHANGE, AND TRADE 435 imposed (especially in a young and rising nation) in hopes of naturaliz- ing a foreign industry, in itself perfectly suitable to the circumstances of the country. Read the entire page →
From page 436... ... 436 TRADE, TAX, AND DIFFUSION POLICY ISSUES trade advantage internationally. A relatively new field, strategic trade theory, is now investigating how these market-power trade advantages can be exploited in the presence of foreign policies that have the same goal.' One might be skeptical of the teachings of this new field, how- ever, on two counts. Read the entire page →
From page 437... ... TECHNOLOGY, STRUCTURAL CHANGE, AND TRADE 437 public knowledge. Very little economic analysis has been done on this subject.'° POLICY RECOMMENDATIONS: INDUSTRIAL POLICY REVISITED The decline in the U.S. Read the entire page →
From page 438... ... 438 TRADE, TAX, AND DIFFUSION POLICY ISSUES environment that we face today and will increasingly face in the future. But that does not mean the government has no role to play in determining our revealed industrial policy. Read the entire page →
From page 439... ... TECHNOLOGY, STRUCTURAL CHANGE, AND TRADE 439 cient resources? If it is because of a market failure (such as infrastructure) Read the entire page →
From page 440... ... 440 TRADE, TAX, AND DIFFUSION POLICY ISSUES Nation Comparison (Washington, D.C.: American Enterprise Insti- tute, 1984) , makes a distinction between "leading" and "strategic"' industries. Read the entire page →
From page 441... ... TECHNOLOGY, STRUCTURAL CHANGE, AND TRADE 441 nese and West German productivity growth over the United States, he observes, is apparently unhindered by the fact that leading ex- ports as a share of all exports is much smaller in Japan and West Germany than in the United States. "Increasingly, technological knowledge and capability are international rather than national ... Read the entire page →

From page 421...

... TECHNOLOGY, STRUCTURAL CHANGE, AND TRADE 421 world economy just as the world economy has become more im- portant for the United States. We have become much more vulner- able to global economic developments.