The Role of Technology in the International Trade and Economic Environment - Essay Example

?TECHNOLOGY AND TRADE INTRODUCTION Technology is influenced business from different dimensions. Different dimensions or areas of businesses includingproduction, information system, marketing, finance, human resource, operations, inventory management and several others have been influenced by technology. International trade is another important factor that has received significant impact from the technological changes. One of the impacts on international trade from technological changes has been the determination of importer and exporter positions. Countries with dominance in technological advancements have taken the position of becoming importers. Such countries have increased their focus on developing and enhancing technologies and this has helped in improving their profits. On the other side, there are countries that have developed export economies by utilising the technology that devised by importing countries. Policies of both these types of countries related to technological adaption have played a significant role in determining the international trade pattern. Role of technology in developing a pattern of trade had been formed with various other dimensions as well. In addition, the technological advancement has also received criticism for its role. Hence, the role of technology in trade policy is of immense importance not only for academic purpose but also from the perspective of an economist as well. Role of technology in trade is increasingly being considered as a game changing variable in international trade and economic scenario. Europe has enjoyed the benefits of technological development and it has dominated over the years because of technological advancement. Europe at the moment is considering the other side of opportunities towards technological advancement as it is focusing on southern countries with import dependencies. Hence, the essay develops a review of literature on the role of technology in the international trade and economic environment. Policies of China for changing its position from an imitator country to be an innovator country have also been discussed in the essay. The essay also provides the discussion on the topic followed by conclusion. LITERATURE SURVEY International trade has received significant direction from technological advancement. Krugman (1979a) has developed an equilibrium model that determines trade pattern as a result of technology adaption or improvement of countries. Krugman’s equilibrium model has two types of countries; north and south. Northern countries have been focussing on developing technological expertise that increases earnings per technological development and labour efficiency by not increasing the non-human input. Northern countries have also been focussing on developing new products and then export these products to southern countries with charging additional rentals or prices for innovation being offered. Referred countries with dominance on new product development also benefit with transportation-inn of movable capital that includes both increased foreign direct investment as well as skilled labour. Increased efficiency with technological advancement results in labour receiving higher wage rate despite of similar productivity rate as of southern side countries. On the other side are southern side countries, these countries focus on receiving technological advancement from developed (northern) countries. Southern countries focus on manufacturing old products and export them to north for meeting their demand. Hence, according to Krugman (1979a) technological developments determine the pattern of international trade. Apart from this north south model that determines the position of importer and exporter in international trade theory, Krugman (1979b) has also documented reason of trade between countries with similar technological position. Krugman (1979b) cites the reason for such trade i.e. trade between countries in north or south category as to be the economies of scale. Hence, adopting Chamberlinian approach for defining trade being determined with increasing returns with economies of scale or a matter of expanding market than technological and factor endowment only. International trade along with above mentioned factors are important in determining the direction on the basis of which trade policies are directed. Strategic trade policies also have played an important role in positioning of countries in international trade. For instance, America in order to promote its agricultural exports has offered importers subsidised prices than European competitors and it has been able to gain clientele for its products for factors other than technology (Krugman, 1986). Therefore, the role of trade policies, budgetary and fiscal elements have played decisive roles in the international trade model. Policies have been focusing on research oriented economy than production, however, it has to be aligned with the technological factors which have been discussed above. As noted that new products are provided by northern countries and it results in gaining comparative advantage for dominance in development of new products. Magnier and Toujas-Bernate (1994) have assessed the industrial countries’ export share determining factors. Assessing five major developing countries, Magnier and Toujas-Bernate (1994) have stated that other than price, there are various factors from the supply side that determine the share of country in international trade. For instance, the supply of the research and development factor, skilled labour and others have to play significant role in shaping the trade pattern of country as being export or import oriented country. Role of technology in determining the trade situation of a country has been further explored with various assumptions for technology (Grossman and Helpman, 1995). Technology as an exogenous variable leads to increased output in developed countries and results in increased wages for labour on the basis of combination of goods that are being produced, imported and going to be produced. Other important factors such as increased R&D and technological advancement give rise to wages that in turn increases welfare and helps in the development of the society. Similarly, technology as exogenous variable for southern side countries results in rise in wages from mass production. Further, learning of new technology also increases welfare for countries, particularly technologically developing countries. Technological benefit can also be reaped with technology being an endogenous variable of system providing opportunity for learning by doing as well as investing specifically in technology for advancement. Hence, technology being endogenous or exogenous factor impacts trade positions and policies while at the same time trade policies also directs technology. For instance, western countries restrict technological spill over to developing countries with intellectual property rights. Fujita, Krugman and Venables (1999) have developed in depth assessment of international trade with respect to geographical perspective. The assessment states that transfer of the labour factor of production is more towards the core area. This provides offerings for growing necessities of life with differentiations. Hence, system creates a gravitational pull of workers and firms in the core market. The core later expands from cities to the urban settlement that follows the Christellar Central Place theory which states that population settlement follows the closeness to the provision of goods and services. The pattern continues in similar fashion and finally the international economic, international trade and industrial trade patterns are being defined. The aspect of economics, known as economics of location, in contrast to simple economics has its own dimensions and gains greater influence from transport costs, resources immobility and linkages developed in the economy. Therefore regional economics also offers contribution to the international trade determination. Impact of technology on the trade has received positive feedbacks and has several benefits, however, technology has also been facing criticism. Among the issues identified and gained significant economic attention has been factor prices. Factor prices in exporting and importing countries have undergone significant changes. For instance, since developed countries have moved towards more knowledge based import oriented economies, the prices of factors such as low skilled labour has declined in the developed countries. Krugman (2000) had developed theoretical assessment with regards to the impact of technology on the factors’ prices. The study states technology as primary factor for such changes in prices than trade as considered by some economist. The study, however, does not claim to free the volume of trade having forcing the variation in prices of the goods as well as factors. Important contribution of the study had been regarding the requirement of trade policies in order to define the role of each factor with critical assessment without considering either trade or technology as secondary aspect to affect factor prices. One important factor that has increased the influence of technology on the business in general and trade in specific has been fact that technology is an ongoing concept. This continuous or ongoing concept keeps on adding value with variations. Academic literature addressing the relationship between technology and trade as well as technological transfer and its growth has been in two parallel sequences. Eaton and Kortum (2001) combined the two parallel streams. As according to them, the technological growth with trade can also be done with exporting the capital goods that diffuses the technological advancement opportunities to developing countries hence providing opportunities of technological growth across the board. However, the concept has many challenges such as moving the idea across the board requires elimination of trade barriers or ease intellectual property rights. In line with Krugman’s (1979a) North South Model where developed countries have gained the power through technological development and southern countries with manufacturing gains has been case of China and Europe. China in south has gained significant power with its manufacturing and export oriented economy. Anticipating the power of technology or enchasing the power gained from strengthened export based economy, China has taken step forward for developing its own technological advanced position (Xie and Li-Hua, 2009). China had been investing significantly in R&D and upgrading the technology that it owns as manufacturing countries. In addition, China had also been expanding its global linkages as well for moving towards technologically developed country. However, developing a knowledge based economy requires China to deal with greater challenges such as its culture had been manufacturing based and so convincing people and system to adapt to new format requires investment in areas far more than identified. For example, the most important area that requires adaption is patents rights and regulation and so on. Going towards technology orientation has radically been matter of external challenges and a process and China is growingly found abreast with both aspects. For instances, Japanese invented JIT inventory system to resolve challenges for inventory storage being densely populated state while China’s growing innovations for green energy, with the largest number of patents filed, are attempts to meet the environmental challenges that country is facing due to extensive manufacturing. The other aspect of the technological adaption being the continuous process is evident from the numbers of patents filed by Chinese companies. This number has grown at 27% during 2004 to 2007 and is expected to surpass leader if grows. Moreover, various innovations as well as serious adherence by the Chinese courts to deal with patents law suits are important indicators of China moving towards new identity of innovator than imitator (Gupta and Wang, 2009). To mention rising Chinese status had been so intense that Chinese investments in Europe are raising fear of fall among the Europeans. Despite of the fact that China had excluded Europe from its public procurement restrictions, China’s increased financial support to indebted European countries are pressing European business to shut down business in China in order to keep the Europe’s dominance or even at least balance between the powers of two countries. The concerns have risen to an extend that position of Europe and China is growingly been considered in context of Europe and Africa despite of strengthened position of Europe as compared to Africa. China’s penetration in Europe is also being retaliated for the fact that China’s has taken strong measures with respect to public procurement as well as precious material export (The Economist, 2011). DISCUSSION Technology is increasingly being defined as a driving force that changed the entire economic spectrum. Despite the fact that technology is innovated for business yet it also in turn forces business as well as all stakeholders to adapt its way. International business had been one of the best examples. On the basis of technology countries’ status was being defined as being an importer or exporter. Countries that had been technologically equipped and had capability to advance technological innovation, though rightly forwarded the manufacturing section to countries that lacked stated capability, however, over on import oriented economies dependence resulted negatively. Though many other factors had been playing role in defining and directing the international trade pattern such as restrictions from patents and intellectual rights were also not able to keep the balance. China that was being considered an acronym for imitation had managed to move towards innovation. The concept of learning by doing had come into play. Chinese, though, had taken the technology from technologically developed countries yet have learned significant of it by constantly dealing with these technologies for manufacturing. An important factor that shall be made the basis for deciding the position of country as export or import oriented countries lies in understanding the consistently depending on single aspect does not play. There has to be a balance in each. The case of China presents the best example. China did not adopt the technological advancement as a matter of changing its position from southern category of country to northern ones but the underlying factor has remained to sustain the position of growth. China in order to sustain its position of consistent growth while moving from imitator to innovators position had been taking full support from factors that have been considered in the literature review. For instance, trade policies have been set in order to restrict the public procurement while developing linkages after making China core of attraction with offerings to the needs (low cost manufacturing) of developing countries. Technology’s endogenous and exogenous role into play has also been addressed. Hence, the growth of China to the extent that is posing threat to Europe had all been resulted with moving towards balance of import and export. The phenomenon is simply an accurate implementation of the already existing one as trade between the northern and southern countries has also been already undergoing. International trade’s disturbance example that Europe had been facing, therefore, require developing the balance. However, striking a balance is a challenge. For instance, balance in technological advancement requires being moving on advancement to under-advance countries which in turn will conflict with intellectual property rights. Moreover, International trade’s policies are required to strike the balance of transferring the manufacturing segment of economy. Over dependencies has given dominance to China while technologically equipped Europe is feeling vulnerability. Therefore, countries specifically European countries are required to develop trade policies that facilities limited transfer of old product manufacturing to developing countries. It is also critically important for the benefit of factors in both countries. For instance, limited transfer of manufacturing will offer job and attractive wage rate to labour in developed countries that have declined due to over transfer. Moreover, skilled labour in the southern side countries would also attract to developing technology internally than attracting to the core cities and regions in line with economics of region. Hence, need to define the balance that controls rising polarity in technologically developing and technology receiving countries. CONCLUSION The essay developed review of the literature for the role of technology in defining international trade. The role has explored the impact that technology poses to the trade as well as also highlighted the aspects and factors that impact technological development. In depth assessment revealed that trade position of the business importer and exporter can be balanced using various trade factors that have capacity to control the technological enforcement to system. The discussion also highlighted the need to balance the technological advancement as a matter of mere sustenance. Hence, in depth discussion with reference to growing position of China as innovator as well as Europe’s feel of vulnerability to fall has asserted the need to balance the polarisation of international trade. List of References Eaton, J., and Kortum, S. (2001). Technology, trade, and growth: A unified framework. European Economic Review, vol. 45, no. 5-6, pp. 742–755 Fujita, M., Krugman, P., and Venables, A. (1999). The spatial economy: cities, regions and international trade. Cambridge, MA: MIT Press Grossman, G., and Helpman, E. (1995). Technology and trade. Handbook of international economics, vol. 3, pp. 1279- 1337 Gupta, A., and Wang, H. (2009). China as an innovator, not just an imitator. Business Week, available from http://www.businessweek.com/stories/2009-03-09/china-as-an-innovator-not-just-an-imitatorbusinessweek-business-news-stock-market-and-financial-advice [Accessed 1 May 2013] Krugman, P. (1979a). A model of innovation, technology transfer, and the world distribution of income. The Journal of Political Economy, vol. 87, no. 2, pp. 253-266 Krugman, P. (1979b). Increasing returns, monopolistic competition, and international trade. Journal of International Economics, vol. 9, pp. 469-479 Krugman, P. (1986). Strategic trade policy and the new international economics. Cambridge: MIT Press Krugman, P. (2000). Technology, trade and factor prices. Journal of International Economics, vol. 50, pp. 51-71 Magnier, A., and Toujas-Bernate, J. (1994). Technology and trade: empirical evidences for the major five industrialized countries. Review of World Economics, vol. 130, no. 3, pp. 494-520 The Economist. (2011). China and Europe: The scramble for Europe? Available from http://www.economist.com/blogs/charlemagne/2011/06/china-and-europe [Accessed 1 May 2013] Xie, W., and Li-Hua, R. (2009). What will make China an innovation-oriented country? Journal of Knowledge based Innovation in China, vol. 1, no. 1, pp. 8-15 Read More