Problem%20Set%20_1b%20ANSWERS

Problem%20Set%20_1b%20ANSWERS - Econ 181: International...

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International Trade Spring 2009 Problem Set #1b ANSWERS (Due Tuesday, February 10, 2009) 1. Article Analysis—The Gravity Model : Read this article and answer the following questions. Steve Lohr, "Outsourcing Is Climbing Skills Ladder" , The New York Times, February 16, 2006. The URL is: http://query.nytimes.com/gst/fullpage.html?res=990CE1D9133EF935A25751C0A9609C8B63 a. The textbook rhetorically asks how large the outsourcing of service activities might become. According to the article, what fraction of U.S. and European multinational companies intends to change substantially the way they perform global research and development? In addition, is the amount of jobs in the research and development sector a significant part of the U.S. or European labor force? Thirty-eight percent of a survey of 200 U.S. and European multinational companies plan to change their global research and development in the next three years. But scientists and engineers make up only a small part of the U.S. and European labor forces. b. The article states China and India will attract the greatest increase in research and development projects. Is this claim consistent with the gravity model? In one sense, it is. Although China and India are still poor relative to the U.S. and European countries, their incomes are growing rapidly, so China and India should be able to engage in a rapidly increasing amount of trade in research and development. However, the gravity model also predicts that more trade in research and development would occur between the U.S. and European countries, since these countries have higher incomes, they are relatively close to each other and have some cultural affinity. c. Besides income and distance, productivity can also affect trade (as the next chapter discusses). According to the article, what are the primary reasons China and India are viewed as attractive places to perform research and development? The primary reason indicated is that China and India have well educated scientists and engineers to perform the research and development. When good education makes workers in these countries productive, service outsourcing can become desirable. d. Using the categories in Figure 2-8 of the textbook (8 th edition), how would you classify outsourcing of research and development? Outsourcing of research and development would be classified under the category "professional
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Problem%20Set%20_1b%20ANSWERS - Econ 181: International...

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