Condliffe Memorial Lecture - Economics and Finance - University of Canterbury - New Zealand

2006 Condliffe Memorial Lecture: Gene Grossman

Economists like to say that ideas matter, and Professor Gene Grossman's ideas have mattered a lot - both in the realms of economic theory and in application to the real world. He is the Jacob Viner Professor of International Economics at Princeton University, which is particularly appropriate: the acknowledgements section of John Condliffe's major work, The Commerce of Nations, thanks Jacob Viner for his assistance. In addition to being the Jacob Viner Professor of International Economics, Professor Grossman holds a joint appointment with the Woodrow Wilson School of Public and International Affairs. Professor Grossman has received numerous professional honours and awards including the Harry G. Johnson from the Canadian Economics Association and prestigious fellowships from the Alfred P. Sloan Foundation and the John Simon Guggenheim Memorial Foundation. He was elected a Fellow of the Econometric Society in 1992 and a Fellow of the American Academy of Arts and Sciences in 1997. Professor Grossman recently served a three-year term on the Executive Committee of the American Economic Association and a term as Chairman of Princeton's Economics Department.

Professor Grossman has written extensively on international trade. He is well known for his work on the determinants of international competitiveness in dynamic, research-intensive industries, and in particular for his book with Elhanan Helpman entitled Innovation and Growth in the Global Economy where he discusses the importance of profit-seeking entrepreneurial innovation in driving economic growth. He has also written (with colleague Alan Krueger) a widely-cited paper on the likely environmental impacts of the North American Free Trade Agreement; this paper provided the first investigation into what's now known as the environmental Kuznets curve. He there argued that when a country starts from a very low level of development, economic growth will tend first to degrade environmental quality, then substantially to improve it once income per person rises sufficiently. He has written many other widely-cited papers on U.S. and developing countries' trade policies. Professor Grossman's most recent writings examine the political forces that shape modern trade policy. Professor Grossman and Elhanan Helpman collaborated on Special Interest Politics, which was published by the MIT Press in 2001 and on Interest Groups and Trade Policy, which was published by Princeton University Press in 2002.

In his Condliffe lecture, Professor Grossman discusses an issue of substantial recent concern, both here and in the Unites States: companies moving low-wage jobs to less developed countries. Does this offshoring hurt domestic workers? Economists traditionally argued that this type of offshoring hurts low-wage workers, while benefiting higher-wage workers, with the gains from the latter exceeding the losses of the former. However, Professor Grossman argues that this type of offshoring can actually work to the advantage of low-wage workers. Tasks performed by firms vary in the ease with which they can be performed from afar. Professor Grossman shows that cost-savings from moving tasks offshore generate a "profit/scale" effect that causes low-wage industries to increase their demand for low-wage workers in those tasks which cannot easily be sent abroad. He calculates that this "profit/scale" effect is empirically important, and is responsible for low-wage workers being better off than they otherwise would be.

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