13112019 Globalisation 1.0 and 2.0 helped the G7. Globalisat

13/11/2019 Globalisation 1.0 and 2.0 helped the G7.
Globalisation 3.0 helped India and China instead. What will
Globalisation 4.0 do? | VOX, …
https://voxeu.org/content/globalisation-10-and-20-helped-g7-
globalisation-30-helped-india-and-china-instead-what-will-
globalisation-40-do 1/7
Columns Video Vox VoxTalks Publications Blogs&Reviews
People Debates Events About
VOX CEPR Policy Portal
Research-based policy analysis and commentary from leading
economists Search
Create account | Login | Subscribe
126 A A
Related
Trade globalisation in the last two centuries
Michel Fouquin, Jules Hugot
Early globalisation and the law of one price
Mario Crucini, Gregor Smith
Challenges in the coming phase of globalisation:
A sense of déjà vu
Otaviano Canuto, José Manuel Salazar
Globalisation 1.0 and 2.0 helped the G7.
Globalisation 3.0 helped India and China instead.

What will Globalisation 4.0 do?
Richard Baldwin 21 January 2019
Richard Baldwin describes how digital technology is allowing
people and companies to arbitrage large relative
price differences in wages across countries, offering an
enormous export opportunity for developing nations.
Globalisation leapt forward in the late 19th century
when steam power slashed the costs of moving goods
internationally. This ‘old globalisation’ came in two
waves. Globalisation 1.0 started in 1820 and ended at
the start of WWI, and Globalisation 2.0 began after
WWII and ended around 1990.1 In between,
globalisation retreated.
Old globalisation was especially beneficial to today’s
rich nations. The G7 (France, Germany, Italy, Britain, US,
Japan, and Canada) saw rapid growth of
their exports, incomes, and industry compared to today's poor
nations. This led to what Kenneth
Pomeranz, a historian, calls the Great Divergence.
The G7’s share of world GDP soared from one-fifth in 1820 to
two-thirds in 1988. Its share of world
trade rose to more than 50% (Figure 1). Enormous differences
in income between rich and poor
nations first emerged at this time.
Figure 1 Spot the difference: Globalisations 1.0 and 2.0 (blue)
and 3.0 (red)
Banking, FinTech, Big Tech:
Emerging challenges for
financial policymakers

Challenges in the digital age
The parliamentary Brexit
endgame
Live Long and
Prosper? The
Economics of
Ageing
Populations
How to improve
consumer credit
ratings
Richard Baldwin
Professor of International
Economics at The Graduate
Institute, Geneva; Founder &
Editor-in-Chief of VoxEU.org;
exPresident of CEPR
Blogs&Reviews
Creating zombies and
disinflation: A cul de sac for
accommodative monetary
policy
Acharya
The October truce on US-
China trade failed to address
subsidies
Bown, Hillman

Sense and nonsense in the
public discussion of the future
of work
Baldwin
Why the CPTPP could be the
answer to the US-China trade
war
Petri, Plummer
Randomistas rule
Beck
more
Don't Miss
Petralia, Philippon, Rice, Véron
Labhard, McAdam, Petroulakis,
Vivian
Tyson
Vox eBooks
Bloom, 14 October 2019
More eBooks
Vox Talks
Listen | Open Player
By Topic By Date By Reads By Tag

https://voxeu.org/columns
https://voxeu.org/videovox
https://voxeu.org/vox-talks
https://voxeu.org/epubs
https://voxeu.org/blogs-reviews
https://voxeu.org/people
https://voxeu.org/debates
https://voxeu.org/events
https://voxeu.org/pages/about-vox
https://voxeu.org/
https://www.facebook.com/cepr.org/
https://www.linkedin.com/company/centre-for-economic-policy-
research/
https://www.twitter.com/voxeu/
https://www.youtube.com/voxviewscepr/
https://voxeu.org/user/register
https://voxeu.org/user/login?destination=node/63781
https://voxeu.org/pages/feeds
https://voxeu.org/article/trade-globalisation-last-two-centuries
https://voxeu.org/article/early-globalisation-and-law-one-price
https://voxeu.org/article/challenges-coming-phase-
globalisation-sense-d-j-vu
https://voxeu.org/article/banking-fintech-big-tech-emerging-
challenges-financial-policymakers
https://voxeu.org/article/challenges-digital-age
https://voxeu.org/article/parliamentary-brexit-endgame
https://voxeu.org/content/live-long-and-prosper-economics-
ageing-populations
https://voxeu.org/vox-talks/how-improve-consumer-credit-
ratings
https://voxeu.org/user/6229
https://voxeu.org/content/creating-zombies-and-disinflation-cul-
de-sac-accommodative-monetary-policy
https://voxeu.org/content/october-truce-us-china-trade-failed-
address-subsidies
https://voxeu.org/content/sense-and-nonsense-public-

discussion-future-work
https://voxeu.org/content/why-cptpp-could-be-answer-us-china-
trade-war
https://voxeu.org/content/randomistas-rule
https://voxeu.org/epubs/ebooks
https://voxeu.org/vox-talks/how-improve-consumer-credit-
ratings
https://voxeu.org/popup/64772
https://voxeu.org/columns/topics
https://voxeu.org/columns/archive
https://voxeu.org/columns/reads
https://voxeu.org/columns/tag
Note: Gross domestic product (GDP) is a measure of a country’s
total economic output and income.
Source: Author’s elaboration of Maddison online data.
The impact of Globalisation 1.0 on the global distribution of
industry was equally shocking, as Figure
2 shows. Britain was the first industrialiser. It maintained a
massive lead until 1900, when it was
surpassed by the US. The other G7 nations took off in the mid-
to-late 1800s. Since the emergence
of human civilisation, China, India-Pakistan and other ancient
nations had been the leading
industrial powers. But as the G7 industrialised, these ancient

nations de-industrialised.
Figure 2 Per capita industrialisation levels, 1750 to 1913
Source: Author’s elaboration of data from Bairoch (1982, Table
9).
Globalisation 1.0 drove northern industrialisation and southern
de-industrialisation. This is not as
widely known as it should be, but it has long been recognised.
As Simon Kuznets wrote in 1965:
“Before the 19th century and perhaps not much before it, some
presently underdeveloped
countries, notably China and parts of India, were believed by
Europeans to be more highly
developed than Europe” (Kuznets 1965:20, cited in Baldwin and
Martin 1999).2
The new globalisation: Globalisation 3.0
Globalisation leaped forward again in the late 20th century
when information and communication
technologies (ICT) radically lowered the cost of movi ng ideas
internationally. This ‘new
globalisation’, or Globalisation 3.0, had dramatically different
effects on world income (GDP) shares,
as can be seen from Figure 1. In just 20 years, the G7 share of
world GDP plummeted to 50%, and
its share of trade to 32%. This trend, which might be called the
'Great Convergence', is surely the
dominant economic fact of the last 20 or 30 years.
What happened to the landscape of global manufacturing?
Figure 3 shows that the G7 nations lost
share gradually between 1970 and 1990, followed by an

accelerated decline from 1990. To where
did manufacturing go? Just six developing nations – which we
might call the ‘Rapidly Industrialising
6’, or I6 for short – accounted for almost all of it. The I6 are
China, Korea, India, Poland, Indonesia
@VoxEU
RSS Feeds
Weekly Digest
Albanesi
More Vox Talks
CEPR Policy Research
Discussion Papers Insights
Homeownership of
immigrants in France:
selection effects related to
international migration flows
Gobillon, Solignac
Climate Change and Long-
Run Discount Rates:
Evidence from Real Estate
Giglio, Maggiori, Stroebel,
Weber
The Permanent Effects of
Fiscal Consolidations
Summers, Fatás

Demographics and the
Secular Stagnation
Hypothesis in Europe
Favero, Galasso
QE and the Bank Lending
Channel in the United
Kingdom
Butt, Churm, McMahon,
Morotz, Schanz
Subscribe
http://twitter.com/VoxEU
https://voxeu.org/feed/recent/rss.xml
https://voxeu.org/pages/how-do-i-subscribe-vox-weekly-digest-
email
globalisation-40-do?qt-quicktabs_cepr_policy_research=0#qt-
quicktabs_cepr_policy_research
globalisation-40-do?qt-quicktabs_cepr_policy_research=1#qt-
https://voxeu.org/epubs/cepr-dps/homeownership-immigrants-
france-selection-effects-related-international-migration-flows
https://voxeu.org/epubs/cepr-dps/climate-change-and-long-run-
discount-rates-evidence-real-estate
https://voxeu.org/epubs/cepr-dps/permanent-effects-fiscal-
consolidations
https://voxeu.org/epubs/cepr-dps/demographics-and-secular-
stagnation-hypothesis-europe
https://voxeu.org/epubs/cepr-dps/qe-and-bank-lending-channel-
united-kingdom

and Thailand. China stands out. It gained almost 16 percentage
points of world manufacturing in
just 20 years.
Figure 3 Most of the G7’s share loss in manufacturing went to
just seven rapidly industrialising
nations
Source: UNSTAT.org.
To understand why globalisation today acts differently to its
effect in the 20th century, we need a
broader framework for thinking about globalisation and the
things that drive it. This was the theme of
my 2016 book, The Great Convergence: Information
Technology and the New Globalisation.
This framework also helps us think about the effect that
Globalisation 4.0 will have.
Three cascading constraints of globalisation
Economic globalisation can be defined as all the things that
happen when:
goods,

ideas,
people,
services, and
capital
move from one nation to another. Globalisation matters because
these flows affect our jobs,
salaries, income distributions, and so on. (Many more things
cross borders, but these are the main
flows we are interested in when we analyse economic
globalisation.)
But this list is too long. We should simplify to clarify. As Karl
Popper said: “Science may be
described as the art of systematic over-simplification.” So if we
want to understand how the flows
affect economies and people, it is useful to narrow the list.
Capital is quite different from the other flows and so we set it
aside. When services cross borders,
they are either ideas (say, architectural plans) or embedded in
goods (say, diamonds that have
been skilfully cut in India). This means we can lump services in
with either ideas and goods. this
leaves us with three flows: goods, ideas, and people.
The next natural question is, what drives globalisation? The
answer is equally simple. Globalisation
is driven by arbitrage.
Arbitrage drives globalisation
When a good is relatively cheap in Germany compared to China,
then other goods are relatively
cheap in China compared to Germany. It's a logical
inevitability. For example, if good 1 is relatively

cheap compared to good 2 in Germany, then good 2 must be
relatively cheap compared to good 1
in China.
When companies exploit price differences – buying low and
selling high – we get international trade.
Companies buy what is relatively cheap in Germany and sell it
in China and buy what is relatively
cheap in China and sell it in Germany. Trade is driven by a two-
way buy-low, sell-high arbitrage.
This is not a new idea – David Ricardo was writing about it in
1817. There is also arbitrage in ideas
and people. As we saw, arbitrage of knowhow was particularly
important in Globalisation 3.0.
The arbitrage of the three flows is limited by three costs.
Globalisation has been driven by reductions in the costs of
moving goods, ideas and people,
because when these costs fall, so does the cost of separating
production and consumption
geographically. But, to understand globalisation, we need to
distinguish the costs of separation for
each. Since the early 19th century, all three have fallen, but not
at the same time. Shipping costs fell
dramatically 150 years before communication costs did. Face-

to-face interactions remain costly,
even today. This shaped how globalisation evolved.
To understand this, we can be guided in a gallop through the
history of trade by a thought
framework that I call the 'three cascading constraints' (3CC)
view of globalisation.
The 3CC history of globalisation
When transportation involved wind power by sea, and animal
power by land, almost nothing could
be shipped at a profit over a long distance. The high cost of
moving goods, people and ideas
created three constraints that bound together the production and
consumption of goods. Therefore,
apart from elite goods and essential raw materials, most things
that people consumed were made
within walking distance of their homes. We know from books
and paintings that royalty and the rich
could enjoy goods made far away, but most people lived in
villages. For the rest, consumption
meant locally made food, shelter, and clothing.
This isolation meant that the world economy was little more
than a patchwork of village-level
economies. The extreme separation of production hindered
innovation, because small-scale
production meant innovation was worth little to the innovator,
and their dispersion meant that it was
difficult for innovation to spread quickly. Modern growth, in
other words, was stymied until
Globalisation 1.0 took off.
The cost of moving goods was the first of the three to fall
dramatically. From the early 19th century,

steam power and transport technologies improved in a process
that helped create, and was helped
by, the Industrial Revolution.
With cheaper international shipping, more people bought goods
from far away. Kevin O’Rourke and
Jeff Williamson, two economists of the history of trade, date
this to 1820. But while shipping got
cheaper, the cost of moving ideas and people fell much less.
This unbalanced reduction in arbitrage
costs triggered a sequence of changes that had a huge effect on
the global economy:
As markets expanded globally, industry clustered locally. These
clusters were in today’s
developed nations. Today’s developing nations de-
industrialised.
Northern industrialisation triggered northern innovation, which
stimulated northern growth. But
ideas were costly to move, and so northern innovations stayed
in the north. The result was a
vast imbalance in knowledge-per-worker ratios between the
global north and the global south.
The localisation of innovation also meant that growth took-off
later in today’s poor nations, and
was slower afterwards.
The growth differences between north and south generated the
colossal, north-south income
asymmetry that we still see today.
Globalisation accelerated again around 1990, when the ICT
revolution radically lowered the cost of
moving ideas. Globalisation’s second unbundling – the
geographic separation of each
manufacturing stage, organised in 'global value chains' (GVCs)
– became feasible when the ICT

revolution made it possible to organise complex activities at
distance. The north-south wage gap
inherited from the first unbundling made this offshoring
profitable.
Nature abhors a vacuum, economies abhor imbalances. It
became cheaper to move ideas, and so
this inevitably triggered massive north-to-south flows of
knowhow, which reconfigured the world
economy as shown by the red lines in Figure 1. This new -style
globalisation – where high-tech
moved to places where there was low-wage labour – turned the
first unbundling on its head. It de-
industrialised the north and industrialised the south. Growth
slowed in the north and accelerated in
the south.
In short, it produced the Great Convergence.
The knowledge that is moving north to south mostly belongs to
firms based in the G7. Firms in the
G7 have invested in GVCs to ensure that they profit from the
new ICT-enabled possibilities. The
21st-century contours of knowledge are increasingly defined by
the geography of the GVCs, rather
than the geography of nations.
The 3CC view of globalisation argues that this outcome depends
on the cost of moving people, not
goods or ideas. Aeroplane fares have fallen, but the time-cost of
travel has continued to rise
because we need to factor in the salaries of managers and
technicians. Since it is still expensive to
move people around – and international production networks
still need people to move among

facilities – most advanced manufacturing still occurs in nations
that are close to the G7 industrial
powerhouses, especially Germany, Japan and the US. India is an
exception, but this is because
India has engaged in international production networks for
which face-to-face contact is less
important.
The industrialisation impact of the second unbundling was
hyper-concentrated, but the Great
Convergence is much broader because of the knock-on effects
of the rapid industrialisation of the
I6. About half of the world's population lives in the I6, so rapid
income growth has triggered a boom
in demand for raw materials. This, in turn, triggered the
‘commodity super-cycle’ that led to growth
take-offs in commodity-exporting nations. In other words, the
second unbundling (Globalisation 3.0)
drove growth in many developing nations that were untouched
directly by GVCs.
I have summarised the 3CC narrative in Figure 4. It's clear that
a third unbundling becomes
possible if face-to-face costs plummet. And that, in my view, is
what Globalisation 4.0 is all about.

Figure 4 The 3CC view of globalisation
Future globalisation will be in things that we do
Globalisation is, I believe, in for a radical new transformation.
This will happen if the cost of face-to-
face interaction falls as much as the cost of moving ideas has in
the recent past. This will allow a
third unbundling. This will be the unbundling of service
workers and service work, or to put it
differently, it makes it possible to separate labour services
geographically from the labourers.
Arbitrage of goods and ideas will continue, but there will be a
new, disruptive aspect called 'tele-
migration'. People will sit in one nation, while working in
offices in another nation.
There is a simple driving force for this arbitrage. Salaries and
wages for this type of work are much
higher in rich nations. Hundreds of millions, maybe billions, of
people in poor nations would like to
earn those wages. Today that is not technically possible,
because there is a high face-to-face cost,
and we still need in-person interactions in many service and
professional jobs. If digital technology
relaxes this third constraint on the global arbitrage of wage-rate
differences, as I think this will, it
would be a big change.
If digital technology allows people in poor nations to offer their
labour services in advanced
economies without actually having to be there, a lot of people in
advanced economies could lose
their jobs. The necessary technology is already on the way. This
is the topic of my new book, The

Globotics Upheaval: Globalisation, Robotics and the Future of
Work.
A third unbundling
The service sector in G7 nations has been shielded from
globalisation because most services
require face-to-face contact. Times are changing.
The third unbundling is unfolding before our eyes. It is all
about processing and transmitting
information. Laws of physics governing goods do not govern
data. The explosive growth of digital
technology creates the possibility of remote intelligence (RI).
Digital technology is tearing down the
barriers to arbitrage in labour services.
Firms already hire remote knowledge workers abroad at lower
wages. As more companies in rich
nations source labour this way, the matchmaking network will
grow. Many companies in the US and
Europe seem unaware of the possibilities, or maybe they are
hesitant to explore what the
consequences may be. But once a firm’s competitors start using
low-cost foreign labour,
competition will accelerate the process.

Talented foreign workers will increasingly use digital platforms
like Upwork.com, looking for work,
and companies that use them will join the platforms, looking for
remote workers. My guess is that
tipping-point economics will define the progress of global
outsourcing of services. Once people
begin to trust these platforms – as they have rapidly come to
trust internet services like Airbnb and
Uber – it will snowball into something very big, very fast.
Impact on developing nations
The comparative advantage of most developing nations comes
from labour that is, quality-adjusted,
still cheap. Mostly, the only way they exploit it is to use their
labour to make a thing, and then ship
that thing across borders. Since manufacturing is subject to
large agglomeration economies, and
requires that manufacturers get many things right, only a
handful of developing nations can really
transform their economies based on manufactured exports alone.
Most that have succeeded have
done so by joining the supply chains that were clustered in G7
nations.
Tele-migration will allow people with skills in developing
nations to export their services directly. This
may allow the emerging market miracle to continue, but also to
spread to many nations that until
now have only been able to export commodities.
An accelerating process
The first two globalisations helped the G7 nations and hindered
the developing nations – at least in

a relative sense. Until 1990, most rich nations grew faster than
most poor nations. This is because it
was easy to ship goods, but difficult to ship knowhow.
Offshoring manufacturing fostered innovation and rising
competitiveness in the G7 nations, but the
opposite in developing nations. Coordinating complex activities
was too expensive, and so the
knowledge stayed in the G7, despite the very large imbalances.
The ICT revolution opened a way
for G7 firms to arbitrage the big differences in knowhow -to-
labour ratios that were responsible for
wage differences.
Now digital technology is allowing people and companies to
arbitrage large relative price differences
in wages. This will be an enormous export opportunity for
developing nations – especially ones, like
India and China, that have fast internet in urban areas and
millions of workers with recognisable
skills that companies and people in rich countries would like to
buy. Tele-migration will also be an
export opportunity for many in the rich nations since
competition in services is not always won by
the cheapest. Quality and reliability still matter.
Will the Great Convergence continue? Will the G7’s share of
world GDP continue to decline, and
India’s and China’s continue to rise? The answer to both
questions is yes. The nature of future
globalisation will great accelerate the process.
References
Baldwin, R (2016), The Great Convergence: Information
Technology and the New Globalization,

Belknap Press of Harvard University Press.
Baldwin, R (2019), The Globotics Upheaval: Globalisation,
Robotics and the Future of Work, Oxford
University Press.
Baldwin, R, P Martin and G Ottaviano (2001), "Global Income
Divergence, Trade, and
Industrialization: The Geography of Growth Take-Offs", Journal
of Economic Growth 6(1): 5-37.
Braudel, F (1984), Civilisation and Capitalism, 15th-18th
Century: The Perspective of the World. vol
3, Harper and Row.
Chaudhuri, K N (1966), "India’s Foreign Trade and the
Cessation of the East India Company’s
Trading Activities, 1828-40", Economic History Review 19(2):
345-63.
Kuznets, S (1965), Economic Growth and Structure, Selected
Essays, Heinemann.
Endnotes
[1] We could probably describe pre-modern globalisation – the
opening of the Silk Road in 200
BCE, the golden age of Islam (8th to 14th centuries), or the
European age of discovery (15th to 17th
centuries) – as beta globalisation, or maybe Globalisation 0.0. It
was very different, because it had a
negligible impact on the living standards of the masses.
[2] Braudel (1984) and Chaudhuri (1966) show that, during the
18th century, the Indian cotton textile
industry was the global leader in terms of quality, production

and exports. 18th-century India and
126 A A
China also produced the world’s highest-quality silk and
porcelain. Before the 18th century, these
manufactured goods were exported to Europe in exchange for
silver, as European manufactures
were uncompetitive in the East (Barraclough 1978). Clearly, the
civilisations that invented
gunpowder, paper and aids for oceanic navigation were by no
means primitive societies, waiting for
Europe to industrialise.
Related
Trade globalisation in the last two centuries
Michel Fouquin, Jules Hugot
Early globalisation and the law of one price
Mario Crucini, Gregor Smith
Challenges in the coming phase of globalisation: A sense of
déjà vu
Otaviano Canuto, José Manuel Salazar
Printer-friendly version

https://voxeu.org/article/trade-globalisation-last-two-centuries
https://voxeu.org/article/early-globalisation-and-law-one-price
https://voxeu.org/article/challenges-coming-phase-
globalisation-sense-d-j-vu
https://voxeu.org/print/63781
Chapter 25: Theory Testing and Theory Evaluation*
Jacqueline Fawcett
INTRODUCTION
The focus of this chapter is the science and art of theory
development and evaluation. The
chapter begins with a definition of theory and a description of
the process of theory
development and continues with a discussion of the critical
thinking that is required for the
evaluation of theories. The emphasis in this chapter is theory
development and evaluation
activities that are required for advanced practice nursing. The
content of this chapter is
especially relevant to two of the American Association of
Colleges of Nursing’s Essentials of
DoctoralColleges of Nursing’s Essentials of Doctoral Education
for Advanced Nursing
Practice: Essential I, Scientific Underpinnings for Practice , and
Essential III, Clinical
Scholarship and Analytical Methods for Evidence-Based
Practice.
THE SCIENCE AND ART OF THEORY DEVELOPMENT

The term theory is used to refer to diverse works, ranging from
very abstract and general
conceptual models to less abstract and general grand theories, to
relatively concrete and
specific middle-range theories, to very concrete and specific
narrow-range situation-specific
theories. Despite the lack of consensus about the meaning of
theory, King and Fawcett
(1997) found considerable agreement about the existence of
levels of abstraction for
theoretical work. In this chapter, the term refers to middle-range
theories and
situation-specific theories. The term conceptual model refers to
the very abstract and
general work from which theories are derived.
Theories
A theory is made up of concepts and propositions about a
phenomenon. A concept is a word
or phrase that captures the essence of something, such as
adjustment or distress. It may
have one or more dimensions. An example of a single-
dimensional concept is resiliency. An
example of aa multidimensional concept is perceived stigma,
the six dimensions of which
are fear of contagion, healthcare neglect, negative self-
perception, social isolation, verbal
abuse, and workplace stigma (Mwangi, 2013).
A proposition is a statement about one or more concepts. A
proposition about one concept is
a definition or a description of the concept; resiliency, for
example, is defined as “The
capacity to return to a restorative level of functioning using
compensatory/coping
mechanisms; the ability to bounce back quickly after an insult”

(American Association of
Critical Care Nurses, 2014, p. 1). A proposition about two or
more concepts states an
association between the concepts, including the relation
between the concepts or the effect
of one concept on one or more other concepts. An example of a
statement of the relation
between two concepts is, “Socio-demographic characteristics
are related to perceived
stigma” (Mwangi, 2013). An example of a statement about the
effect of a concept on other
concepts, which typically involves the effect of some
intervention on some outcomes, is,
“Information about walking exercise has a positive effect on
symptoms, fatigue, emotional
distress, and physical function” (Mock et al., 2007)Nursing
theories usually focus on
experiences of health conditions and health-related events.
Examples of health conditions
include such medical diagnoses as congestive heart failure
cancer, and diabetes. Examples
of health-related events include pregnancy, childbirth, the
postpartum period, and aging. The
health condition or health event of interest provides a context
for a theory. For example, the
concepts of exercise intervention, fatigue, and emotional
distress and the propositions about
those concepts could make up a theory about the effects of an
exercise intervention on
fatigue and emotional distress experienced by men with colon
cancer. Alternatively, the
concepts of fatigue and emotional distress might make up a
theory about the relation

between fatigue and emotional distress during the postpartum
period.
Types of Theories
Three types of theories are descriptive, explanatory, and
predictive. Descriptive theories
simply describe some phenomenon. They typically comprise one
concept and one
proposition that is a definition or description of the concept. An
example of a descriptive
theory is the theory of fatigue. In this ccase, the theory concept
is fatigue. The theory
proposition asserts that fatigue is a multidimensional concept
defined as behavioral, sensory,
and affective experiences (Piper et al., 1998).
Explanatory theories specify how concepts are related to each
other and, therefore, provide
explanations for phenomena. They consist of two or more
concepts, the propositions that are
definitions or descriptions of each concept, and the propositions
that specify the relation(s)
between the concepts. An example is the theory of chronic pain
(Tsai, Tak, Moore, &
Palencia, 2003). The theory concepts are chronic pain, physical
disability, social support,
age, gender, perceived daily stress, and depression. The
propositions that are definitions of
each concept are as follows:
Chronic pain is defined as the frequency and severity of pain
(Tsai et al., 2003).Physical
disability is defined as the frequency and extent of mobility,
walking, bending, and hand and
finger function (Tsai et al., 2003).
Social support is defined as “perceived levels of social support .

. . [including] (a) provision of
attachment/intimacy, (b) social integration, (c) opportunity for
nurturant behavior, (d)
reassurance of worth, and (e) availability of informational,
emotional, and material help” (Tsai
et al., 2003, p. 162).
Age is defined as age in years (Tsai et al., 2003).
Gender is defined as male or female (Tsai et al., 2003).
Perceived daily stress is defined as “the degree to which older
persons experience daily
stress from irritating, frustrating, or repeated occurrences in
their lives” (Tsai et al., 2003, p.
162).
Depression is defined as the frequency of depressed mood
symptoms within the past week
(Tsai et al., 2003).
The following theory proposition specifies the relations between
the concepts: Chronic pain,
physical disability, social support, age, and gender are related
to perceived daily stress,
which is related to depression.
Predictive theories specify how a concept affects one or more
other concepts. They are
made up of two or more concepts, the propositions that are
definitions or descriptions of
each concept, and the propositions that specify the effect(s) of
one concept on one or more
other concepts. An example is the theory of the effects of
simulated conflict management
training (Pines et al., 2014). The theory concepts aresimulated
conflict management training
exercises, stress resiliency, psychological empowerment, and

conflict management style.
The propositions that are definitions of each concept are as
follows:
Simulated conflict management training exercises are defined as
“didactic and simulated
training using a variety of scenarios for learning resiliency
skills, enhancing perceptions of
empowerment and increasing knowledge of personal styles of
conflict management” (Pines
et al., 2014, p. 87).
Stressr resiliency is defined as “the ability of an individual to
adjust to adversity, maintain
equilibrium, retain some control over the environment, and
move in a positive direction”
(Pines et al., 2014, p. 86).
Psychological empowerment is defined as “the individual’s
perceived sense of meaning and
purpose, competence, self-determination, and impact on the
work role” (Pines et al., 2014, p.
86).
Conflict management style is defined as “[depending] on the
situation and the parties
involved and [involving] a choice of methods to manage a
situation. . . . [The five]
conflictmanagement styles [are] accommodating, avoiding,
collaborating, competing, and
compromising. Accommodating is unassertive and cooperative
and allows the other person
to dominate. Avoiding is both uncooperative and unassertive
and is characterized by the
individual’s avoidance of taking any action. Collaborating is
assertive and cooperative and
represents an attempt to find a solution to the conflict.
Competing is assertive and
uncooperative. Finally, compromising is intermediate in both

assertiveness and
cooperativeness and partially satisfies the needs of each party.
With competing, [an
individual] assertively pursues personal concerns at the expense
of the concerns of another.
In compromising, the object is to find a mutually agreeable
solution that partially satisfies
both parties. Resiliency and empowerment reflect application of
the appropriate
strategy/style in response to the situation” (Thomas & Kilmann,
as cited in Pines et al., 2014,
p. 86).
The following theory proposition specifies effects: Simulated
conflict management training
exercises have a positive effect on stress resiliency,
psychological empowerment, and
conflictmanagement style (Pines et al., 2014).
Empirical Indicators and Other Empirical Methods
Most theory concepts and propositions cannot be directly
observed or measured. Instead,
each concept must be connected to an empirical indicator, which
serves as a real-world
proxy—or substitute—for a concept. Empirical indicators that
are particularly useful for
advanced practice nurses are assessment tools and intervention
protocols. Assessment
tools include various types of questionnaires, such as checklists
and rating scales, which
contain one or more items. For example, postpartum mood
disorder is assessed by the
21-item Neuman Postpartum Mood Questionnaire (Fashinpaur,
2002), or as a one-item
rating scale that asks the woman to indicate, on a scale of 0 to
10, the extent to which she
feels depressed. One-item assessment tools are particularly

useful in advanced practice
nursing because they do not impose a burden on patients, which
may occur when a tool with
many items is used. One-item assessment tools also are useful
because they do not impose
an undue burden on the advanced practice nurse, which may
occur with use of a multi-item
tool that requires calculation of a score.
Conceptual Models
Theories are developed through a melding of science and art in
the form of creative
conversion of ideas stemming from provocative facts (Levine,
1966; 1991) observed in
practice and in the literature. These facts are noticed because
they fit with the observer’s
frame of reference about nursing, which also is called a
conceptual model of nursing. Among
the best-known conceptual models are Levine’s Conservation
Model, Neuman’s Systems
Model, Orem’s Self-Care Framework, and Roy’s Adaptation
Model. Overviews of these and
other conceptual models of nursing are found in Appendix N-1
of Taber’s Cyclopedic Medical
Dictionary (Fawcett, 2013). A comprehensive analysis and
evaluation of each of these and
other conceptual models of nursing is given in Fawcett and
DeSanto-Madeya’s (2013) book
Contemporary Nursing Knowledge: Analysis and Evaluation of
Nursing Models and
Theories.
Each conceptual model of nursing is made up of concepts and

propositions that are more
abstract and general than those of a theory. Examples of
concepts from Roy’s adaptation
model include stimuli andgeneral than those of a theory.
Examples of concepts from Roy’s
adaptation model include stimuli and adaptation. For example,
the following proposition
defines a conceptual model concept: Adaptation is defined as
“the process and outcome
whereby thinking and feeling people, as individuals and in
groups, use conscious awareness
and choice to create human and environment integration” (Roy,
2009, p. 26). An example of
a proposition that links the concepts of stimuli and adaptation is
as follows: Stimuli are
related to the physiological, self-concept, role function, and
interdependence modes of
adaptation (Fawcett, 2003).
Conceptual–Theoretical–Empirical Structures for Theory
Development
Theory development involves specification of a conceptual –
theoretical–empirical (C-T-E)
structure made up of three components:
A conceptual model
A theory
Empirical indicators and other empirical methodsTheory
development is the product of
research, which is a systematic process of inquiry (Fawcett &
Garity, 2009). Thus, every
study is explicitly or implicitly designed to develop a theory by
means of generation of new
theory or testing of an existing theory. Theory-generating
research is descriptive research,
the findings of which are new descriptive theories. Theory

testing research can be
descriptive, correlational, or experimental research. The
findings of descriptive theory-testing
research determine the empirical adequacy of an existing
descriptive theory. The findings of
correlational theory-testing research determine the empirical
adequacy of an existing
explanatory theory. The findings of experimental theory-testing
research determine the
empirical adequacy of an existing predictive theory. Although
the conduct of research
typically is thought of as a rigorous scientific process, it is also
a creative endeavor involving
an appreciation of the beauty of logical reasoning and the “aha”
moments that come when
developing elegant C-T-E structures, designing studies, and
interpreting data.
13/11/2019 Trade and investment in the global economy | VOX,
CEPR Policy Portal
https://voxeu.org/article/trade-and-investment-global-economy
1/4
economists Search

28 A A
Related
Can FDI help developing countries upgrade
export quality?
Torfinn Harding, Beata Javorcik
Protectionism backfires on FDI
Holger Görg, Christiane Krieger-Boden
Intellectual property rights and FDI knowledge
diffusion
Roger Smeets, Albert de Vaal
Trade and investment in the global economy
James Anderson, Mario Larch, Yoto Yotov 30 July 2019
Foreign direct investment has traditionally been viewed as a key
driver of prosperity, and modern FDI has also
become a vehicle for transferring intangible assets. This column
uses a counterfactual experiment based on a
hypothetical world with no outward or inward FDI to and from
low-income and lower-middle-income countries to
examine the effects of FDI on trade, domestic investment, and
welfare. World welfare falls by about 6% and all
countries lose out, with some poorer countries losing over 50%.
World trade falls by 7%, with the losses again
unevenly distributed.
Foreign direct investment (FDI) is traditionally viewed
as a key driver of prosperity in policy circles.
According to the OECD (2002), “FDI is an integral part
of an open and effective international economic
system and a major catalyst to development. [...] With
most FDI flows originating from OECD countries,
developed countries can contribute to advancing this

agenda. They can facilitate developing countries'
access to international markets and technology.” In
addition, modern FDI has become a vehicle for
transferring intangible assets. According to the World Bank
(2015), “[t]oday, FDI is not only about
capital, but also – and more important – about technology and
know-how, [...] International patterns
of production are leading to new forms of cross-border
investment, in which foreign investors share
their intangible assets such as know-how or brands in
conjunction with local capital or tangible
assets of domestic investors.” Academics share the hopes of
policymakers for a positive economic
impact of FDI, which plays central role in recent integration
efforts. Slaughter (2013: 3) argues that
“[i]f successfully negotiated, [TTIP and TPP] would deepen and
strengthen ties with many of the
most significant U.S. economic partners. A large majority of
inward FDI in the United States already
originates from TTIP and TPP countries, making these deals
particularly important in the broader
effort to recruit global business investment.”
Policymakers' enthusiasm is based on the obvious partial
equilibrium evidence of FDI impacts on
sectoral output, employment, and capital returns. In contrast,
there is relatively little structural
evidence for the economy-wide importance of FDI as a vehicle
for knowledge transfer and the
effects on trade, domestic investment, and welfare. The lack of
a unified multi-country framework of
the global economy impact of FDI is, at least in part, because
the relationship between FDI and
various economic outcomes is intrinsically dynamic. However,
as noted by Desmet and Rossi-
Hansberg (2014), introducing dynamics to static multi-country

trade models is hard, typically making
“spatial dynamic models intractable, both analytically and
numerically.” (p. 1212).
To gain traction with spatial dynamics in the case of FDI, in a
recent paper (Anderson et al. 2019b)
we build a framework that characterises the impact of FDI
through interactions with trade and
domestic investment in physical capital. On the trade side, the
model is a member of the wide
structural gravity class of new quantitative general equilibrium
trade models described in detail by
Arkolakis et al. (2012). Domestic investment in physical capital
is modelled following Anderson et al.
(2019a). The main novelty is the introduction of FDI on the
supply side, where, in the spirit of
McGrattan and Prescott (2009) and Markusen (2002),
production uses FDI in the form of non-rival
(or joint) technology capital along with labour and physical
capital stocks. Thus, countries can use
their technology capital in potentially all countries while using
at home the technology capital from
potentially all countries.
FDI liberalisation increases FDI, with general equilibrium
implications for trade, income, and
expenditure. An increase in bilateral FDI directly leads to
higher income and to higher expenditure
in the liberalising countries. Since higher expenditure leads to
more accumulation of technology

endgame
James Anderson
William B. Neenan Millenium
Professor of Economics, Boston
College
Mario Larch
Professor for Empirical Economics
(Chair) at the University of
Bayreuth
Yoto Yotov
Professor, LeBow College of
Business, Drexel University
Don't Miss
Vivian
Tyson
Events
Cross border financial
services: Europe's
Cinderella?
15 - 15 November 2019 /
Brussels, Belgium / SUERF -
The European Money and

Finance Forum BFF - The
Belgian Financial Forum
Autumn School on FinTech
20 - 22 November 2019 /
Florence, Italy / Florence
School of Banking and
https://voxeu.org/
research/
https://voxeu.org/article/can-fdi-help-developing-countries-
upgrade-export-quality
https://voxeu.org/article/protectionism-backfires-fdi
https://voxeu.org/article/intellectual-property-rights-and-fdi-
knowledge-diffusion

https://voxeu.org/events/cross-border-financial-services-
europes-cinderella-0
https://voxeu.org/events/autumn-school-fintech
CEPR Policy Portal
2/4
capital, FDI liberalisation between two countries will also
trigger positive spillover effects on output
and expenditure in third countries. Through its impact on output
and expenditure, increases in FDI
will also translate into increases in trade flows. The changes in
FDI in our counterfactual experiment
also indirectly affect trade between countries with no change in
bilateral FDI. The structural gravity
class of models describes equilibrium trade as if each country
trades with a world market facing an
average friction called multilateral resistance – one on outward
shipments (export) and another on
inward shipments (imports). Changes in outputs and
expenditures change the equilibrium
multilateral resistances because they are general equilibrium
indexes, i.e. they capture the effects of
changes between any two countries on consumer and on

producer prices in any other country in the
model.
Motivated by one of the opening quotes, which depicts FDI as a
key driver of development, we
quantify the importance of the novel FDI channel with a
counterfactual experiment that describes a
hypothetical world without outward and inward FDI from and to
low- and lower-middle-income
countries. The calibration is based on a balanced data set for 89
countries, which account for more
than 96% of world GDP and for more than 94% of FDI in 2011.
Of the 89 countries, 21 are classified
as low- or lower-middle-income countries according to The
World Bank's Country and Lending
Groups classification.
The impact from the elimination of FDI in the low- and lower-
middle-income countries on trade and
welfare in the world is depicted in Figures 1 and 2. Figure 1
reports the effects on trade, measured
by the percentage change in total exports. Three main findings
stand out. First, FDI is indeed an
important driver of trade. On average, the gains from FDI in the
poorer countries in the world
amount to 7% of world's trade in 2011, the year of our
counterfactual analysis. Second, all countries
lose from the counterfactual elimination of FDI in the poorer
countries. Third, the impact is
heterogeneous. Poorer countries lose the most, but the impact
varies widely even within this group
– some lose over 50% and some very little. The impact on
countries in the rest of the world is
significant as well. Some countries lose a lot (e.g. Luxembourg,
Singapore, and Ireland) while
others (such as India, Ecuador, and Dominican Republic) lose

less. Pakistan and Sri Lanka actually
see an increase in their total exports due to the elimination of
FDI.
Figure 1 Percentage change in total exports from eliminating
outward and inward FDI to and from
low- and lower-middle-income countries
Figure 2 reports impact of the elimination of FDI in the poorer
countries on welfare, measured by
properly discounted consumption. Overall, in terms of direction,
the welfare indexes in Figure 2 are
consistent with the trade indexes that we present in Figure 1. On
average, the gains from FDI
amount to 6% of world's welfare in 2011. Further, all countries
in the world have benefited from FDI,
but the effects are very heterogeneous. The directly affected
low- and lower-middle-income
countries see welfare changes up to over 50% (Morocco and
Nigeria), while some of the remaining
68 countries, such as Ecuador, Turkmenistan, and Dominican
Republic are hardly affected. A higher
country-specific production share of FDI leads to larger welfare
losses, all else equal. Intuitively, a
larger importance of FDI in production leads to larger welfare
losses when restricting FDI. A larger
net log FDI position leads to larger welfare losses. Intuitively,
if a country has more inward than
outward FDI, restricting FDI will lead to larger welfare losses,
as FDI is complementary to other
production factors and therefore overall income increases more
than FDI payments.
The results suggest that FDI has acted to reduce cross-country
income inequality. In particular, the
results suggest that FDI has led to significant increases in the

welfare of some of the poorer
economies in the EU. Given the renewed interest in the
determinants of inequality (European
Commission 2010), our results have potentially important
implications for regional policy.
@VoxEU
RSS Feeds
Weekly Digest
Finance, European University
Institute
Competition in Digital
Markets
20 - 22 November 2019 /
Barcelona / Barcelona
GRaduate School of
Economics
Forecasting for Banking
Using Time Series Methods
27 - 29 November 2019 /
Institute
Call for papers: Workshop on
Market Frictions and
Macroeconomics, Santiago,
Chile
28 - 29 November 2019 /
Santiago, Chile / Millennium

Institute in Market
Imperfections and Public Policy
(MIPP) and Center for Applied
Economics, University of Chile
Homeownership of
Gobillon, Solignac
Run Discount Rates:
Weber
Summers, Fatás
Secular Stagnation
Favero, Galasso
Kingdom
Morotz, Schanz

Subscribe
email
https://voxeu.org/events/competition-digital-markets
https://voxeu.org/events/forecasting-banking-using-time-series-
methods
https://voxeu.org/events/call-papers-workshop-market-frictions-
and-macroeconomics-santiago-chile-0
https://voxeu.org/article/trade-and-investment-global-
economy?qt-quicktabs_cepr_policy_research=0#qt-
https://voxeu.org/article/trade-and-investment-global-
economy?qt-quicktabs_cepr_policy_research=1#qt-
consolidations
united-kingdom
CEPR Policy Portal
3/4
28 A A

Figure 2 Welfare effects of eliminating outward and inward FDI
to and from low- and lower-middle-
income countries (%)
Overall, the analysis reveals that FDI is indeed an important
component of the modern world
economic system. The results suggest positive payoffs to
policies designed to facilitate FDI,
particularly those concerning protection of intellectual property.
In addition, our structural approach
opens new opportunities for further empirical and policy
research. For example, the model delivers
a structural FDI gravity system that resembles the traditional
gravity system of the trade literature
and lends itself to estimation with the most recent econometric
techniques from the gravity
literature. Another structural implication of the model is on the
relationship between FDI and
income/growth, which can be tested in the spirit of Frankel and
Romer (1999). Yet another
structurally motivated relationship that can be tested is the one
between FDI and domestic
investment.
References
Anderson, J E, M Larch, and Y V Yotov (2019a), “Growth and
Trade with Frictions: A Structural
Estimation Framework”, Economic Journal, forthcoming.
Anderson, J E, M Larch, and Y V Yotov (2019b), “Trade and
Investment in the Global Economy: A
Multi-country Dynamic Analysis”, working paper.
Arkolakis, C, A Costinot, and A Rodríguez-Clare (2012), “New

Trade Models, Same Old Gains?,”
American Economic Review 102(1): 94–130.
Desmet, K and E Rossi-Hansberg (2014), “Spatial
Development”, American Economic Review
104(4): 1211–1243.
European Commission (2010), Investing in Europe's Future.
Frankel, J A and D H Romer (1999), “Does Trade Cause
Growth?”, American Economic Review
89(3): 379–399.
Markusen, J R and K E Maskus (2002), “Discriminating Among
Alternative Theories of the
Multinational Enterprise,” Review of International Economics
10(4): 694–707.
McGrattan, E R and E C Prescott (2009), “Openness,
Technology Capital, and Development,”
Journal of Economic Theory 144(6): 2454–2476.
OECD (2002), Foreign Direct Investment for Development:
Maximising Benefits, Minimising Costs.
Slaughter, M J (2013), Attracting Foreign Direct Investment
through an Ambitious Trade Agenda,
Organization for International Investment Research Report.
Qiang, C, R Echandi and J Krajcovicova (2015), “Foreign
Direct Investment and Development:
Insights from Literature and Ideas for Research”, World Bank
Private Sector Development Blog, 24
November.
Topics: Global economy Industrial organisation International

trade
Tags: FDI, welfare, knowledge transfer, investment
https://www.oecd.org/investment/investmentfordevelopment/19
59815.pdf
http://blogs.worldbank.org/psd/foreign-direct-investment-and-
development-insights-literature-and-ideas-research
https://voxeu.org/content/topics/global-economy
https://voxeu.org/content/topics/industrial-organisation
https://voxeu.org/content/topics/international-trade
https://voxeu.org/taxonomy/term/356
https://voxeu.org/taxonomy/term/ 5486
CEPR Policy Portal
4/4
Related
Can FDI help developing countries upgrade export quality?
Torfinn Harding, Beata Javorcik
Protectionism backfires on FDI
Holger Görg, Christiane Krieger-Boden
Intellectual property rights and FDI knowledge diffusion
Roger Smeets, Albert de Vaal
https://voxeu.org/article/can-fdi-help-developing-countries-

upgrade-export-quality
https://voxeu.org/article/protectionism-backfires-fdi
https://voxeu.org/article/intellectual-property-rights-and-fdi-
knowledge-diffusion
13/11/2019 The contribution of Chinese FDI to Africa’s growth
| VOX, CEPR Policy Portal
https://voxeu.org/article/contribution-chinese-fdi-africa-s-
growth 1/2
economists Search
9 A A
The contribution of Chinese FDI to Africa’s pre-crisis
growth surge
John Whalley, Aaron Weisbrod 21 December 2011
In the three years before the global crisis, the average GDP
growth in sub-Saharan Africa was around 6%. This
period also saw significant Chinese foreign direct investment
flowing into the continent. This column uses
growth-accounting methods to assess what portion of this
growth can be attributed to Chinese FDI. Although
for some countries and years the effects were negligible, some

countries saw total GDP growth from 2002 to
2009 increase by 0.5 percentage points due to Chinese FDI
alone.
In the three years before the 2008 financial crisis, GDP growth
in sub-Saharan Africa (averaged
over individual economies) was around 6%, 2 percentage points
above the mean growth in the
preceding ten years. This period also coincided with significant
Chinese foreign direct investment
(FDI) flows into these countries, accounting for as much as 10%
of total inward FDI for some
countries. In our research (Weisbrod and Whalley 2011) we use
growth-accounting methods to
assess what portion of this elevated growth can be attributed to
Chinese inward FDI.
Chinese FDI flows to Africa
Chinese FDI over this period was uneven in both country and
sectoral coverage. It was heavily
concentrated in a relatively small number of countries and in
natural resources. The majority of this
FDI was new investment, with the notable exception of the
purchase of a significant position in a
major South African bank in 2008. Given the large number of
African countries, we focus on the
largest economies and the largest recipients of Chinese inward
FDI. We consider 13 economies
(Angola, Botswana, the Democratic Republic of the Congo
(DRC), Ethiopia, Ghana, Kenya,
Madagascar, Niger, Nigeria, South Africa, Sudan, Tanzania, and
Zambia) accounting for 78% of
sub-Saharan African GDP, and 92% of Chinese FDI flows
between 2003 and 2009.

Growth accounting and the contribution of Chinese FDI to
African
growth
We follow Solow (1957), Dennison (1962), and others and use
data for individual economies
between 1990 and 2009 to first calculate Solow residuals. We
use capital stock, workforce, and
factor-share data by country. Capital stock data is unavailable
directly, so we use perpetual-
inventory methods to construct the data. Factor shares come
from the UN National Accounts data
or the World Bank World Development Indicators, depending on
the calculation method (this is
further addressed in our paper).
We use data on Chinese FDI inflows by country to decompose
capital stock estimates by country
for the years 2003-91 into a portion due to Chinese inflows, and
a remaining non-Chinese FDI
portion. Removing Chinese FDI-driven capital stock data in the
growth accounting enables us to
assess what growth would have been without Chinese FDI.
We run counterfactual growth-accounting experiments for 13
sub-Saharan African countries, both
for the three years 2005-7 and for the longer period 2003-9. Our
estimates of Chinese FDI’s
contribution to the GDP growth vary by nation and by year.
There are years where GDP growth was
elevated by one half of a percentage point (most notably Zambia
from 2006-8 with 0.44-0.67% per
annum, Niger in 2007 at 0.38%, and the DRC in 2009 at 0.65%).
Although for some countries and
years, the effects were smaller or even negligible, some
countries saw total GDP growth over the

total period (i.e. the growth in GDP from 2002-9) increase by
0.5 percentage points or more due to
inward Chinese FDI alone. The contribution of Chinese FDI to
sub-Saharan African growth also
expanded from having significant growth effects in a relatively
small group of core countries
(Nigeria, Niger, Sudan, Zambia and, to a lesser extent, the
DRC) in the years preceding the world
endgame
John Whalley
Professor and William G. Davis
Chair in International Trade,
Department of Economics,
University of Western Ontario
Aaron Weisbrod
Department of Economics,
University of Western Ontario
Don't Miss

Vivian
Tyson
Events
services: Europe's
Cinderella?
15 - 15 November 2019 /
20 - 22 November 2019 /
Institute
Markets
20 - 22 November 2019 /
GRaduate School of
Economics
27 - 29 November 2019 /
Institute

Chile
28 - 29 November 2019 /
Institute in Market
https://voxeu.org/
research/

methods
13/11/2019 The contribution of Chinese FDI to Africa’s growth
| VOX, CEPR Policy Portal
growth 2/2
9 A A
financial crisis (2005-7) to also producing noticeable, even if
smaller, growth effects in a wider range
of sub-Saharan African countries during the years of the crisis
(2008-9). These results suggest that
a significant, even if in some cases small, amount of the
elevated growth in sub-Saharan Africa in
recent years can be attributed to Chinese inward investment.
Caveats
Several caveats apply to both the data and the use of growth-
accounting techniques for this
purpose. One is that exploration expenses in natural resources

are largely expensed, which tends
to understate the investment estimates used to construct capital
stock data in some key countries.
Another is that factor-share data in African national accounts
are typically based on wages paid,
and so returns to smallholders fully show as capital in use. This
use of share data biases the
contribution of investment to growth rates upward. Finally,
ideally a clear separation is needed
between greenfield Chinese investment and purchase of exi sting
assets when using Chinese FDI
data for our purposes, and we make some modifications to FDI
data for this. Despite these caveats,
our results are suggestive of a significant, even if in some cases
small, contribution of Chinese FDI
to elevated African growth, a feature which is likely even more
pronounced post-crisis since
Chinese FDI into Africa has increased further.
References
Solow, Robert M. (1957) “Technical Change and the Aggregate
Production Function.” The Review
for Economics and Statistics 39, No.3, 312-320.
Denison, Edward (1962). The Sources of Economic Growth in
the United States and the
Alternatives Before Us. New York, NY: Committee for
Economic Development.
Weisbrod, Aaron & John Whalley (2011). "The Contribution of
Chinese FDI to Africa’s Pre Crisis
Growth Surge," NBER Working Paper 17544.
1 Although data for Chinese inward outward FDI is available
for 2010, country-level data for our
recipient countries only go up to 2009 so it is currently not
possible for our experiments to include

2010.
Topics: Development
Tags: growth, China, Africa, FDI
@VoxEU
RSS Feeds
Weekly Digest
Homeownership of
Gobillon, Solignac
Run Discount Rates:
Weber
Summers, Fatás

Secular Stagnation
Favero, Galasso
Kingdom
Morotz, Schanz
Subscribe
http://ideas.repec.org/p/nbr/nberwo/17544.html
https://voxeu.org/content/topics/development
https://voxeu.org/taxonomy/ter m/94
email
growth?qt-quicktabs_cepr_policy_research=0#qt-
growth?qt-quicktabs_cepr_policy_research=1# qt-
consolidations

united-kingdom
13/11/2019 How the iPhone widens the US trade deficit with
China | VOX, CEPR Policy Portal
https://voxeu.org/article/how-iphone-widens-us-trade-deficit-
china-0 1/4
economists Search
22 A A
Related
The knock-on consequences of the US-China
trade tariffs on global value chains
Jayant Menon
Welfare effects of Trump's China tariffs
Daniel Gros
How the iPhone widens the US trade deficit with
China
Yuqing Xing
How the iPhone widens the US trade deficit with

China: The case of the iPhone X
Yuqing Xing 11 November 2019
In order to pursue ‘fair trade’, the Trump administration has
imposed a punitive 25% tariff on $250 billion’s
worth of Chinese goods. However, conventional trade statistics
greatly exaggerate the US trade deficit with
China. This column uses the iPhone as an example to
demonstrate how the trade deficit is inflated and why
value-added should be used to assess the bilateral trade balance.
If multinational enterprises, including Apple,
shift part of their value chains out of China, China may no
longer play a central role in global value chains
targeting the US market. Depreciation of the yuan will be
insufficient to counter the effect.
Editor’s note: This is an update of a column first
published in April 2011.
In 2018, the US trade deficit with China in goods
surged to $420 billion. The huge trade deficit triggered
the on-going US-China trade war. In order to pursue
so-called fair trade, the Trump administration has
imposed a punitive 25% tariff on $250 billion’s worth of
Chinese goods. Since the start of the trade war, the
Chinese yuan has been depreciating against the US
dollar. Alleging that the Chinese government used depreciation
as a trade-war weapon, the Trump
administration has designated China a ‘currency manipulator’.
There has been a consensus among economists that conventional
trade statistics greatly
exaggerate the US trade deficit with China (Johnson and
Noguera 2012, OECD and WTO 2013,
Koopman, Wang and Wei 2014). Xing and Detert (2010) use the
iPhone 3G as a case and explain

how the US trade deficit with China was inflated and why
value-added should be used to assess the
bilateral trade balance.
Since the 2007 release of the first-generation iPhone, China has
been the exclusive base for iPhone
assembly. With the launch of the iPhone X, the iPhone has
evolved into a luxury high-tech gadget.
In this column, I use the iPhone X as a case to discuss three
questions. (1) Have the Chinese firms
involved in the iPhone production moved up in the value-chain
ladder? (2) Does the iPhone remain
a significant source of the trade imbalance between the US and
China? (3) Could the yuan
depreciation hedge the risk of Trump’s tariffs?
Moving up the iPhone value chain
For an understanding of Chinese firms’ upward progress in the
iPhone value chain, I examine the
iPhone teardown data to assess Chinese-firm involvement in the
production of the iPhone X. The
teardown data identifies 10 domestic Chinese companies
involved in iPhone X production. Their
tasks go beyond simple assembly to include roles in relatively
sophisticated segments. Table 1 lists
the tasks performed by Chinese firms for the iPhone X in
comparison with that for the iPhone 3G.
Table 1 Tasks performed by Chinese firms in iPhone 3G and
iPhone X production

endgame
Yuqing Xing
Professor of Economics at the
National Graduate Institute for
Policy Studies, Tokyo
Don't Miss
Vivian
Tyson
Events
services: Europe's
Cinderella?
15 - 15 November 2019 /
20 - 22 November 2019 /
Institute

Markets
20 - 22 November 2019 /
GRaduate School of
Economics
27 - 29 November 2019 /
Institute
Chile
28 - 29 November 2019 /
Institute in Market
Homeownership of
Gobillon, Solignac

https://voxeu.org/
research/
https://voxeu.org/user/login?destination=nod e/64776
https://voxeu.org/article/knock-consequences-us-china-trade-
tariffs-global-value-chains
https://voxeu.org/article/welfare-effects-trumps-china-tariffs
china
china

methods
china-0?qt-quicktabs_cepr_policy_research=0#qt-
china-0?qt-quicktabs_cepr_policy_research=1#qt-
china-0 2/4
Source: Xing (2019).
For instance, Sunwada, a leading Chinese battery maker,
supplies the battery pack of the iPhone X,
and Chinese company Dongshan Precision supplies the printed
circuit boards for the iPhone X
through its acquired American company M-Flex. The
involvement of those Chinese firms, though
restricted to non-core technology segments of the iPhone X
value chain, indicates that the Chinese
mobile phone industry as a whole has moved to an upper rung in

the iPhone value-chain ladder.
The bill of materials of the iPhone X is estimated at $409.25, of
which the Chinese firms jointly
contribute $104, about 25.4%. Chinese value-added in the
iPhone X is dramatically higher than the
$6.5 captured in the iPhone 3G. The retail price of the iPhone X
is $1,000; the Chinese firms
together gain 10.4% of the total value added of every iPhone X
sold on the global market.
Figure 1 compares the Chinese value-added of the iPhone X
with that of the iPhone 3G. It clearly
demonstrates that the Chinese value-added embedded in iPhones
increased substantially from the
first generation to the iPhone X.
Figure 1 Chinese value-added embedded in the iPhone 3G and
iPhone X
The iPhone remains a significant source of the Sino-US trade
imbalance
To date, trade statistics are still compiled using the gross value
of exports, implicitly assuming that
all gross value is generated by the exporting nation. According
to that principle, whenever China
ships one iPhone X to the US, the current system of trade
statistics calculates it as a $409.25 export
to the US.
The teardown data reveals that the total value of the parts
imported from the US for assembly of the
iPhone X is $76.5. Hence, importing one iPhone X from China

generates a $332.75 ($409.25–
$76.5) trade deficit for the US. That is the conventional
approach to calculating bilateral trade
balances.
However, Korea, Japan, and other countries are also involved in
the production of the iPhone X and
supply more than 45% of the parts and components. In other
words, the $332.75 consists of not
only value-added originating in China but also that contributed
by Korea, Japan, and other non-US
countries. It should be considered as a trade deficit between the
US and all other countries involved
in manufacturing the iPhone X, not just China.
@VoxEU
RSS Feeds
Weekly Digest
Run Discount Rates:
Weber
Summers, Fatás
Secular Stagnation
Favero, Galasso

Kingdom
Morotz, Schanz
Subscribe
email
consolidations
united-kingdom
china-0 3/4
In terms of value-added, the US deficit with China for the
import of one iPhone X is only $104, less
than one-third of the figure based on gross value (Figure 2). For
every iPhone X imported by the
US, current trade statistics mistakenly add $228.75 to its trade
deficit with China. In 2017, American
consumers bought 42.2 million iPhones units (Finder 2019).
Using that figure as a reference, the

iPhone trade alone exaggerated US trade deficit with China in
2018 by $9.65 billion, about 2.3% of
its total deficit with China.
Figure 2 US trade deficit with China for one imported iPhone X
($)
The iPhone case unambiguously demonstrates that conventional
trade statistics significantly inflate
China’s trade imbalance with the US. The iPhone, a product of
an iconic American company Apple,
remains a significant source of the Sino-US trade imbalance.
Reducing the US trade deficit with
China requires not only fair trade but, more importantly,
unbiased trade statistics consistent with
value chain trade.
Hedging Trump’s tariffs by yuan depreciation: Mission
impossible
Xing and Detert (2010) argue that, because of the foreign value-
added embedded in the iPhone 3G,
appreciation of the yuan would have little impact on iPhone
exports to the US. The same logic
applies to the depreciation of the yuan. The large portion of the
foreign value-added embedded in
the iPhone X greatly weakens the effectiveness of yuan
depreciation in counterbalancing Trump’s
tariffs.
When the Chinese yuan depreciates against the US dollar, only
the $104 Chinese value-added of
the iPhone X will be affected. The rest of the iPhone X’s
production cost—$305.25, the sum of all

parts and components imported for assembling the iPhone X—
will remain constant and not be
affected whatsoever.
However, if President Trump decides to levy a 25% tariff on the
iPhone X, the tax base will be
$409.25, i.e. the sum of both Chinese and foreign value-added.
To offset the tariff burden due to the
foreign value-added, the yuan should depreciate much more
than 25%.
The level of yuan depreciation needed to completely offset the
negative impact of a tariff can be
calculated for any given foreign value-added. Figure 3 reports
the computation results for two tariffs:
10% and 25%, where the horizontal axis denotes the percentage
of foreign value-added embedded
in Chinese exports.
Figure 3 Yuan depreciation required to offset US tariff effects
(%)
china-0 4/4
22 A A
With a 10% tariff, an 11.2% depreciation of the yuan can
counterbalance the tariff if foreign value

added is 10%; for exports with 75% foreign value-added, the
required depreciation surges to
57.1%.
If the tariff rises to 25%, the required depreciation increases
substantially in all scenarios. The yuan
would have to depreciate 28.6% in order to cancel the tariff’s
negative impact if foreign value added
is 10%, and 100% depreciation is required for Chinese exports
with 60% of foreign value-added.
On average, foreign value-added accounts for 33.9% of Chinese
exports to the US. This implies
that a 43.4% depreciation of the yuan is required to completely
cancel the negative impact of a 25%
punitive tariff on all Chinese exports to the US, while an
unthinkable 400% depreciation of the yuan
is necessary to eliminate the negative impact of the same tariff
levied on the iPhone X. The
depreciation rates required to compensate for a 25% tariff are
generally too high to be realised. It is
‘mission impossible’ to use yuan depreciation to hedge the risk
of Trump’s tariffs.
Since conventional approaches cannot eliminate tariff burdens,
for multinational enterprises using
China to assemble products catering to the US market, one
feasible option is to shift part of their
value chains out of China. Apple has asked its major suppliers
to evaluate the cost implications of
shifting 15-30% of their production capacity from China to
Southeast Asia (Li and Cheng 2019).
The trade war is reshaping China-centred value chains. The
redeployment of the China-centred
global value chains will permanently damage China’s export

capacity and China will no longer play
a central role in the global value chains targeting the US
market.
Reference
Finder (2019), “iPhone sales statistics: Just how popular is
Apple’s smartphone in the US?”,
Finder.com.
Johnson, R C, and G Noguera (2012), “Accounting for
intermediates: Production sharing and trade
in value added”, Journal of International Economics 86: 224–
236.
Koopman, R, Z Wang and S Wei (2014), “Tracing value-added
and double counting in gross
exports”, American Economic Review 104(2): 459–94.
Li, K, and T Cheng (2019), “Apple weighs 15%-30% capacity
shift out of China amid trade war”,
Nikkei Asian Review, 19 June.
OECD and WTO (2013), “Trade in value-added: Concepts,
methodologies and challenges”, Joint
OECD-WTO Note.
Xing, Y (2019), “How the iPhone widens the US trade deficit
with China: The case of the iPhone X”,
GRIPS Discussion Papers 19-21.
Xing, Y, and N Detert (2010), “How the iPhone widens the US
trade deficit with PRC”, ADB Institute
Working Paper 257.
Topics: Exchange rates International trade

Tags: value-added, GVCs, global value chain, China, US, trade
war, tariffs, currency depreciation, exports,
US-China trade war
Related
The knock-on consequences of the US-China trade tariffs on
global value chains
Jayant Menon
Welfare effects of Trump's China tariffs
Daniel Gros
How the iPhone widens the US trade deficit with China
Yuqing Xing
https://voxeu.org/content/topics/exchange-rates
https://voxeu.org/content/topics/international-trade
https://voxeu.org/category/tags/value-added
https://voxeu.org/category/tags/gvcs
https://voxeu.org/category/tags/global-value-chain
https://voxeu.org/category/tags/currency-depreciation
https://voxeu.org/article/knock-consequences-us-china-trade-
tariffs-global-value-chains
https://voxeu.org/article/welfare-effects-trumps-china-tariffs
china

Global Economic and Business Operations
Assessment Document 2020-21
Module Code:
BIN3022
Module Title:
Global Economics and Business operations
Submission Date:
Module Aim
This module examines business operations in the context of
the global economy. One part investigates the operation of the
global economy, looking particularly at international trade, the
importance of multinational enterprises and foreign investment,
and the growth and development of economics, especially the
emerging economies of the BRIC group, among others. Other
internationally important global economic issues are also
examined, such as globalisation and environmental policy. In
the business operations part of the module, the emphasis is on
the management methods used to aid resource allocation and
decision making in organisations. The nature of the operational
process is examined and techniques are developed and applied
in practical settings.
Module Learning Outcomes
Module learning outcomes detail the specific knowledge and
understanding, cognitive and intellectual skills, practical and
professional skills, and the key transferable skills that you will
develop during this module. The learning outcomes for this
module are detailed below. These learning outcomes will be
assessed when marking your assignment.

Personal & Transferable Skills
1. Engage effectively in debate and present arguments in a
professional manner.
2. Select and justify approaches to the analysis of organisational
dynamics and apply them to produce practical improvements.
3. Develop reflective practice skills in the study and analysis of
global business dynamics.
Research, Knowledge & Cognitive Skills
4. Describe and evaluate models of the dynamics of
organisational behaviour.
5. Critically evaluate alternative approaches to the modelling of
global business dynamics.
6. Effectively organise global business dynamics knowledge
using a variety of techniques.
7. Evaluate a range of approaches to the analysis of
organisational dynamics models.
Professional Skills
8. Understand and select from a range of key business dynamics
modelling skills
Module Assessment
The assessment requirements for the module, in addition to the
generic level 6 University Assessment Criteria and correct use
of the required referencing format and style, include the
following module specific criteria:
ICA (50% of the final mark Global Economics Part of the

assessment
In-Course Assessment
Word Limit:
2000 words
Submission deadline:
You are required to answer all following questions using
appropriate theories and concepts that were introduced in our
lectures. Use evidence from case study articles where it is
relevant.
Outline the factors in increased globalization. Discuss how
these underling forces are interlinked and reinforce each other.
(40 marks)
Outline and discuss both benefits of and issues arising from
trade protection. You should include the role of FDI in
international trade and use evidence from case studies articles
as examples to support your discussion.
(60 marks)
Important instructions:
Word limit: 2,000.
You should make use of the case study articles as supporting
documents i.e. use the evidence from these articles to support
your answers. You should also draw on the theories, concepts
and frameworks that we covered in ‘global economics’ part of
the module.
All references, quotes, paraphrasing and summaries should be

cited clearly in the text (e.g. page numbers, authors, web
address etc.) and sources consulted listed in the bibliography.
Use a consistent referencing system, preferably Harvard.
The mark for this assignment is 50% of the final module mark.
Case Study Materials
Globalisation 1.0 and 2.0 helped the G7. Globalisation 3.0
helped India and China instead. What will Globalisation 4.0 do
The contribution of Chinese FDI to Africa’s growth
The return to protectionism
The materials are attached in a separate file.
In this ICA,
Demonstrate good fundamental academic knowledge of Global
Economics;
Critically analyse data using appropriate techniques;
Draw appropriate conclusions;
Present the assignment in a clear and understandable way, using
the conventions appropriate to a business report with no
spelling or grammatical errors.
Module Assessment Criteria ICA/ECA
Assignments will be marked in accordance with the following
marking criteria:
ICA ECA Assessment Criteria

Max
Mark
1st Mark
2nd Mark
Feedback Comments:
Knowledge and understanding of Business Operations and
Global Economics to be demonstrated through a clearly
presented discussion of OPS MGMT and Strategy principles.
15
Knowledge and understanding of Supply Chain in Business
Operations: to be demonstrated through a clearly presented
description of the Supply chain of the product/service
30
Illustration and use of examples: to be demonstrated through
clearly presented and accurate use of worked examples of the
presented company/industry
20
Analysis, interpretation and solution of Business Operations and
Global Economics: to be demonstrated through a clearly
presented and accurate solution based on academic refrences,
industrial reports
30

Presentation: your report should be well structured and written,
be free of sentence construction and grammatical errors and
include correctly formatted referencing. Analyses should be
clearly and logically presented.
5
Module Assessment: Submission Guidelines
The reflective report should be submitted electronically using
the ‘Assessment’ link on Blackboard. The deadline for
submission is shown at the top of this document. Feedback will
be provided for the purposes of guidance and to assist your
learning and development. Any reference to marks is entirely
provisional and subject to confirmation following University
procedures. Only University Assessment Boards are able to
issue confirmed, definitive marks.
The pass mark for this assessment is 40%.
Resit: If you do not reach a pass mark, you will have the
opportunity to resit the module assignment by ‘making good’
your original submission using the feedback given by the
marker and moderator.
Word limits and penalties for assignments
If the assignment is within +10% of the stated word limit no
penalty will apply.

The word count is to be declared on the front page of your
assignment and the assignment cover sheet. If this word count
is falsified, this will be regarded as academic misconduct.
The word count does not include:
Title and Contents page;
Reference list;
Appropriate tables, figures and illustrations.
Please note, in-text citations [e.g. (Smith, 2011)] and direct
secondary quotations [e.g. “dib-dab nonsense analysis” (Smith,
2011 p.123)] are INCLUDED in the word count.
If the word limit of the full assignment exceeds the +10% limit,
10% of the mark provisionally awarded to the assignment will
be deducted. For example: if the assignment is worth 70 marks
but is above the word limit by more than 10%, a penalty of 7
marks will be imposed, giving a final mark of 63.
Summarising and compressing the information in your
assignment into the word limit is one of the skills that students
are expected to acquire and demonstrate as part of the
assignment process.
Page 1 of 1
PAGE
Page 2 of 6

13112019 Globalisation 1.0 and 2.0 helped the G7. Globalisat

13112019 Globalisation 1.0 and 2.0 helped the G7. Globalisat

Recommended

Recommended

More Related Content

Similar to 13112019 Globalisation 1.0 and 2.0 helped the G7. Globalisat

Similar to 13112019 Globalisation 1.0 and 2.0 helped the G7. Globalisat (16)

More from CicelyBourqueju

More from CicelyBourqueju (20)

Recently uploaded

Recently uploaded (20)

13112019 Globalisation 1.0 and 2.0 helped the G7. Globalisat