Monday, June 23, 2008

Comparative Advantage & Its Sources

A country has a comparative advantage in producing a good if the opportunity cost of producing the good is lower for that country than for other countries.

There are 3 main sources of comparative advantage:

(a) Differences in climate
(b) Differences in factor endowment (factors of production such as land, labour and capital are of different levels of abundance in different countries)
(c) Differences in technology

The causes of differences in technology are somewhat mysterious. Sometimes they seem to be based on knowledge accumulated through experience. Sometimes, they are a result of set of innovations that for some reason occur in one country but not in others.

Note: Technological advancement is also often transitory. For example, Europe's aircraft industry has closed the gap with that of the US. China's level of technology is also advancing rapidly as a result of technological transfer from the large volume of foreign direct investments into the country, as well as huge funding for R&D from the government as well as private enterprise. At any given point in time, differences in technology are a major source of comparative advantage for any country.

Differences in factor endowment (through differences in the distribution of resources, both quantity and quality) will also affect the cost of production, hence accounting for the differences in opportunity costs. For example, China's abundance of labour, both skilled and unskilled, have allowed her to produce at lower opportunity costs due to the cheap labour, hence giving China a comparative advantage in the labour-intensive industries.

Lastly, climatic differences between countries can play a major role in determining the costs at which different countries produce a good, specifically agricultural produce. For example, certain regions of France have climatic conditions that are highly favourable to the growing of grapes for producing champagne, giving these regions a comparative advantage in production of champagne. On the other hand, the arid climate in many parts of the Australian continent does not favour the growing of agricultural goods such as rice, which requires a lot of water for the paddy fields. In order to supply sufficient water to these crops, complex irrigation networks have been set up and maintained at high cost, which reflects that Australia clearly does not have a comparative advantage in the production of rice.

(Link: Ricegrowers' Association of Australia - Australia's rice is more highly priced; NY Times Article: A Drought in Australia, a Global Shortage of Rice & Article: The Australian Rice Industry and Water)

13 Comments:

Blogger Unknown said...

adidas store
coach outlet online
air jordans
timberland boots outlet
nfl jerseys wholesale
uggs
jordan uk
coach factory outlet online
ysl outlet store
michael kors outlet clearance
zhi20161230

10:08 AM  
Blogger Unknown said...

van cleef
nike huarache
adidas ultra boost
tory burch shoes
asics shoes
nike huarache
michael kors
longchamp
burberry scarf
michael kors purses
20170721

10:34 AM  
Blogger Unknown said...

longchamp
adidas superstar shoes
cheap basketball shoes
michael kors outlet store
air jordans
adidas neo
true religion
air max
jordan shoes
michael kors outlet online
20170724

3:37 PM  
Blogger Unknown said...

adidas ultra boost
ferragamo belt
adidas ultra boost 3.0
kobe sneakers
nike air max 90
cheap jordans
nike air max95
curry 4
longchamp
nike roshe run one

2:26 PM  
Blogger Unknown said...

adidas shoes
nike outlet
ugg outlet
ugg boots
ralph lauren outlet
cheap jordans
jordan shoes
fitflops
ugg outlet
salvatore ferragamo
20179.16wengdongdong

7:48 PM  
Anonymous Obat Penghancur Batu Empedu said...

This article is interesting and useful. Thank you for sharing. And let me share an article about health that God willing will be very useful. Thank you :)

Cara Mengobati Lipoma secara Alami
Obat Penghenti Batuk Berdarah
Obat Penghancur Benjolan di Leher
Cara Mengobati Panu
Cara Menyembuhkan DBD

10:51 AM  
Blogger 7889520 said...

jeje0601moncler online
salvatore ferragamo shoes
nike air huarache
salomon boots
nike roshe run
coach outlet online
polo ralph lauren
coach factory outlet
polo ralph lauren
nike sale
cheap jordans

10:02 AM  
Blogger 7889520 said...

jeje0601superdry uk
ugg boots
true religion jeans
coach outlet store online
pandora jewelry
longchamp outlet
polo ralph lauren
nfl jerseys
cheap ray bans
canada goose jackets
dallas cowboys jerseys
ecco shoes online

10:23 AM  
Anonymous Cara Alami Untuk Mengobati Batuk Kronis said...


Very Nice Blog Updation Keep Updating !!

Cara Mengobati Penyakit Gagal Ginjal
Pengobatan Penyakit Insomnia
Cara Paling Ampuh Mengobati penyakit Hipotiroid

12:45 PM  
Blogger Unknown said...

www0706


fitflops
mulberry handbags
kate spade outlet
oakley sunglasses
kevin durant jerseys
ralph lauren pas cher
moncler outlet
true religion jeans
air jordan shoes
jazz jerseys

8:54 AM  
Blogger Unknown said...

www0801
jordan 4
off-white clothing
nike outlet
louboutin shoes
kate spade outlet
canada goose uk
adidas nmd runner
michael kors outlet
ralph lauren uk
oakley sunglasses wholesale

10:56 AM  
Blogger jobnewsbd24.com said...

IFIC Bank Limited Career 2021 has been published career.ificbankbd.com. Now, interested candidates online application career.ificbankbd.com. this topic related all details found as well our website- jobnewsbd24.com
Also check related all circular- Bank Job Circular in our website.

11:16 PM  
Blogger jobnewsbd24.com said...

BCS Job Circular (BCS Health) 2021 has been today by bpsc.gov.bd. Qualify candidates submit the application form bpsc.teletalk.com.bd web portal website

3:06 PM  

Post a Comment

Subscribe to Post Comments [Atom]

<< Home