Ten years ago, Peter Drucker offered three reasons why the foundation and structure of the world economy had changed:

1. The uncoupling of the primary products and the industrial economies resulting in a decline in the comparative advantages of natural resources.
2. The uncoupling of employment and production within the industrial economy due largely to productivity gains associated with technology.
3. The partial uncoupling of trade and economic growth, with capital flows replacing trade as the engine of the world economy.1

In the decade since, a fourth factor has been widely recognized: the uncoupling of nations and firms, with firms’ strategic decisions emerging as a critical determinant of international flows of trade and investment.2 Taken together, these factors have undermined — perhaps permanently — the integrity of traditional models of trade and investment. At the very least, they have introduced a new level of complexity into the analysis.

For example, a basic tenet of economic theory is that currency depreciation promotes exports and improves a nation’s trade balance. However, between 1970 — just before the collapse of fixed exchange rates — and early 1995, the U.S. dollar lost more than 70 percent of its value against the yen and 60 percent of its value against the mark,3 yet, in 1994, the United States had a $69 billion merchandise trade deficit with Japan... To read the complete article, login or sign-up using the form below.

Become a premium subscriber today to read this and all MIT Sloan Managmeent Review articles.

Buy this article. Purchase one or more copies of this article in PDF form.

Become a premium subscriber today to read this article and the entire archive of MIT SMR articles.

Upgrade your existing subscription to premium

Sign in if you are a premium subscriber.

E-Mail:
Password:

Do you subscribe the MIT Sloan Management Review in print? Enter the email address and password you used when ordering. Don't remember? Lookup your subscription account information

• Register for free access to recent articles and the current issue of MIT Sloan Management Review.
• Subscribe and read articles from the past three years online.
• Premium subscription give you access to the entire archive of articles.