Posted by: Dirk | December 18, 2006

After unbundling globalization

Let me try to give you a short summary of a recent PhD tutorial on Richard Baldwin’s brilliant paper Globalization: the great unbundling(s). Baldwin states that in the new era of globalization it is not firms or industries that compete, but ‘tasks’. The argument is based on the idea that working for a (fast-)growing firm does not come with a job guarantee anymore. If your job can be outsourced to a cheaper worker, it will be. Hence, tasks become important. The main question is tradibility. If you have to be located somewhere to perform your job, you will be likely to stay employed (like a cab driver). A computer programmer would be unlucky, having to compete with other programmers in countries where wages (and probably life) is cheap. So trade in tasks is a new paradigm, with a lot of work waiting to be done. But – and this is a big but – are tasks themselves really something completely different from firms, industries or products?

We think that we can still use our trade model tools just like before. You want to explain why not all jobs belonging to a certain task are outsourced? Well, it’s monopolistic competition. If you are a specialist (with sunk costs), than you might charge a premium and get through with it. Other people will specialize in other things rather than paying a lot just to get the same skills as you. Capital intensity is also important as access to capital is needed for most jobs, and then capital costs are lower in some countries than in others – back in a Heckscher-Ohlin world, aren’t we? Baldwin did a very nice job with his paper. But the conclusion that we need a new paradigm in trade theory might be a bit over the top, we think.

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