Final answer:
The claim is false; advanced economies commonly outsource parts of their value chain internationally to leverage comparative advantage and economies of scale, despite concerns over proprietary knowledge.
Step-by-step explanation:
The statement that in advanced economies, firms generally do not outsource value-chain activities because they fear the loss of proprietary knowledge and trade secrets is false. In the context of international trade, advanced economies often engage in what is known as splitting up the value chain.
This means that different stages of production are conducted in varied locations globally, leveraging comparative advantage, economies of scale, and specialized learning. For example, designing and engineering an iPhone may occur in the United States while parts are supplied from Korea and assembly happens in China. This strategic distribution of tasks enables companies to focus on specialized segments of the production process, often resulting in cost savings and innovation.
Intra-industry trade among high-income economies can lead to economic gains as firms become highly specialized in particular tasks within the value chain. While there is indeed concern about protecting proprietary knowledge and trade secrets, firms balance this risk with the benefits gained from efficiency and specialization.
Therefore, outsourcing value-chain activities is common in advanced economies despite potential risks.