Global ICT exports

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Global ICT Exports

This section of the paper provides and discusses descriptive measures regarding the ICT sector and the continuous globalization process in this sector. It is noticeable from Figure 2.1 below that the world exports of ICT have undergone some remarkable changes in terms of revealed comparative advantage. Western countries have endured the biggest drop in RCA relative to the countries located in the East. Some emerging economies mostly located in Eastern Europe such as Hungary and Czech Republic have experienced enormous increases in RCA from 1996 to 2009. Moreover, China’s major role is becoming increasingly evident as it possesses the highest RCA value in 2009.
The share of OECD countries in the world’s ICT trade has dropped constantly from 88 percent in 1996 to 52 percent in 2007 (OECD, 2010). The total Global ICT in 2008 was worth 4 trillion USD, which is a threefold increase since 1996. Conversely, there is an increasing trend in the Chinese ICT trade, where their share of ICT exports in the world’s ICT market has outstandingly increased from 2.5 percent in 1996 to 19.5 percent in 2007 (WBS 2011). In 2009, the ICT sector experienced a severe drop in world trade due to the economic crisis in 2007-2008. A rebound in 2010 was evident, predominantly due to Japan and Korea who had robust trading bonds with many countries. The G7 countries trade volumes and merchandise trade values increased, reflecting a worldwide
recovery (OECD, 2010).
The goods market has endured fluctuations for the past decade, with stabilizing increases of 12.5 percent from 2003 to 2008 before experiencing a severe slowdown relative to other goods (OECD, 2008). Despite the steady growth and due to the increasing globalization and the emergence of new economies such as China and India, OECD countries lost significant market shares. Conversely, the export portion of non-OECD countries grew significantly for communication equipment and electronic components, while the other product groups experienced a downfall (see Appendix 1). The economic recession  ostly affected OECD countries negatively, whereas the eastern Asian block continued to grow, but at slower rates. Initially, the slowdown hit the United States, then spread into Europe where the ICT production and export performance fell by 6% in 2007 and 2008.
The fluctuations concerning the ICT goods market have recently been leaning more towards a steady downfall for most OECD countries in terms of their share in the market. China’s position has outcompeted many countries in the manufacturing industry; however, many countries have diverted their focus and specialization into trade in ICT services. This is evident by looking at Figure 2-2, where the share of exports in services compared to trade of total services in the world is increasing while the share of goods production has decreased.

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Theoretical Frameworks

Understanding the essence of the Ricardian and Hecksher model introduces us to the fundamental idea of comparative advantage. Comparative advantage depends on countries’ opportunity cost of producing different types of goods and thus explaining specialization patterns. Comparative advantage is determined by differences in total factor productivity (TFP) across countries (Echevarria, 2008). The welfare at a global scale increases if all countries specialize in the areas where they are relatively productive, in other words a country should specialize according to its comparative advantages.
The ICT sector is heavily dependent on technological advancement, which is mainly accumulated
through investment in R&D. Persistent investments in R&D are widely known to alter comparative advantages over time (Fagerberg, 1995; Bernard et al. 1999; Bleaney and Wakelin, 2002; Barrios et al. 2003). This is particularly relevant for the ICT sector, as the product life cycle associated with ICT products is relatively short. Accordingly, persistent R&D investments are essential for comparative advantage in this sector.
According to Vernon (1966) four stages of product development exists, each signifying a vital component. Firstly a new product is introduced to the market by an innovative country. During this stage, the interaction between the market and the agents involved with the new product is smooth, implying an easy gathering of inputs to begin production.
However, this phase is characterized by higher cost of investment in production platforms, human capital and R&D. The second stage is considered to be the market growth stage, where the product becomes homogeneous and the production development becomes normalized. Product life cycle is strongly attached to incoming and outgoing FDI, therefore considering the nature of Multinational Enterprises’ (MNE) and their economic incentives; foreign production commencement is part of Vernon’s second stage of product development where production is commonly established in another developed country to satisfy the increased market demand. The product becomes saturated by entering the third stage where the rise in competition yields lower market shares. Throughout this stage, the production can transfer to underdeveloped countries, where the lowest possible cost production is preferred. The final stage(product standardization) asserts the decline of the product, where the manufacturing of the good shifts to least developed countries. The stages are visually represented in Figure 3-1 below.

1 Introduction
2 Global ICT exports
3 Theoretical Frameworks
4 Data and Method
5 Empirical Results and Analysis
6 Conclusion
List of references
Appendix

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Determinants of Comparative Advantage in the ICT Goods Market

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