Three essays on the transformation of global IT production

Abstract

In the last two decades, the information technology (IT) industry has gone through a fundamental transformation of its organization of international production. This dissertation consists of three essays that address the nature, causes and consequences of this transformation. The first essay "The Determinants of East Asia's Information Technology Trade" focuses on the build-up of East Asia's IT sector and its implications for IT trade in the Asia-Pacific region. East Asia's expanding role in global IT production is attributed to the decision of multinational firms to vertically fragment their production processes and move labor-intensive production stages to labor-abundant East Asia. To study the impact of international production fragmentation on IT trade in the Asia-Pacific region, a panel regression of modified bilateral IT trade equations is estimated. The estimation results indicate that fragmentation has significantly increased IT trade in the Asia-Pacific region. The second essay "Modularity and the Organization of International Production" focuses on the co-evolution of vertical outsourcing and horizontal consolidation that has been observed in the IT industry. To account for this phenomenon, I build an industry-equilibrium model in which the boundaries of the firm are endogenous in both the horizontal and vertical dimensions of international production. The concept of modularity is subsequently incorporated into the model. The model not only links the co-evolution to modularity, but also predicts the emergence of de facto input standardization during this process. The third essay "Assessing the Benefits of Telecommunications Liberalization in Tunisia" focuses on the importance of regulatory reforms on the success of telecommunications liberalization in developing countries. For this purpose, a computational general equilibrium (CGE) model for Tunisia is set up in which the telecommunications sector can form different imperfectly competitive market structures under liberalization. I demonstrate that telecommunications liberalization will be welfare improving if the domestic and foreign telecom providers act competitively, but can be welfare reducing if they form a cartel. The results of this essay strengthen the argument that pro-competitive regulatory reforms need to accompany telecommunications liberalization in developing countries such as Tunisia.