Nation & World

Politics may be local, but business is global

4 min read

The ins and outs of international trade

In his classes, economist Pol Antràs likes to talk about Barbie.

He’s not a devoted fan of the iconic toy. Rather, the native of Spain, who studies the organizational aspects of trade, globalization, and outsourcing, uses her to make an important economic point.

Her plastic and hair, he tells his students, comes from Taiwan and Japan. Her molds come from the United States. And her assembly happens in Indonesia, Malaysia, and China, where it is significantly less expensive than other countries.

Barbie represents “this process of fragmentation, that anything we now buy or wear embodies the work and labor done in so many countries, and that we are very far from a world in which everything we buy is produced domestically,” said Antràs.

His interest in the production and subsequent travels of the 50-year-old, long-limbed doll from construction to store shelves grows out of Antràs’ longstanding interest in international economics.

It was at a soccer game that the future Harvard professor had his first encounter with the concept of supply and demand. While attending a match for his favorite team FC Barcelona, the curious 10-year-old asked his older brother why the country couldn’t simply help people in poverty by printing more money.

“I don’t really remember the answer he gave,” said Antràs, on a recent sunny afternoon in his office in the Littauer Center for Public Administration, “but I do remember I didn’t find it convincing.”

Later, as a young student at Universitat Pompeu Fabra in Barcelona, Antràs enrolled in various international economics courses. There, his curiosity was piqued, he said, by companies that had a significant international impact.

“I started learning more and more about multinational firms, not just how big they are, but how big of a share of world production they account for, how big of a share of world trade they account for. There was this obvious importance of multinational firms in shaping the world economy.”

A multinational firm, noted the professor in economics, is defined as one that controls multiple manufacturing plants, at least two of which are located in different countries.

Admitted to the Massachusetts Institute of Technology (MIT) in 1999 to pursue his Ph.D. in economics, Antràs’ innovative thesis work, which combined the standard international trade models and traditional definitions of the boundaries of a firm, explored the reasons multinational firms often contract with international manufacturing facilities instead of buying the facilities themselves.

His research shows that when manufacturing work is labor-intensive, such as that involving textiles, companies are more likely to contract international factories rather than own their own facility. That’s because the incentive of local managers to ensure worker performance is greater if the plant is locally owned. If, however, the manufacturing is done largely with machinery, as is the case in capital-intensive sectors, the performance of workers is less of a factor and the facility is more likely to be owned directly by the manufacturing company.

“When you are running your own firm you are likely to internalize more, to benefit more from your own efforts,” said Antràs. “By giving up ownership and control of their overseas facilities, certain firms might actually be able to elicit more effort on the part of foreign providers and suppliers.”

He is currently a faculty associate of the Weatherhead Center for International Affairs at Harvard, a research fellow of the Centre for Economic Policy Research in London, and a research associate with the National Bureau of Economic Research in Cambridge, Mass., where he also directs the International Trade and Organizations Working Group. Antràs was an assistant professor at Harvard from 2003 to 2007.

His current work at Harvard involves contractual issues relevant to international trade, including issues of financing, globalization, and trade integration.

“One issue that interests me now,” he said, “is how this whole system is going to react to the current global financial crisis.”

The financing of international trade is being directly affected, noted Antràs, as intermediaries who facilitate much of that market are unable to secure funding from banks that have restricted their lending practices.

“There are these massive production networks involving trade among many countries, and the way [financial] shocks in one country get transmitted to other countries is very different now than it used to be when our production was less dependent on what happened in other places.”