Comparative Advantage
I have chosen the Comparative Advantage Theory for my key term to discuss. I chose this term because it has a great importance on world trade clearly help shape the pattern of world trade, and also to get a better understanding of the concept.
Comparative Advantage is the benefit or advantage of an economy to be able to produce a commodity at a lesser opportunity cost. According to Satterlee (2009), opportunity cost is the value of what had to be given up, or forgone, to consume or achieve the object. This term simply means, countries should specialize in a certain class of products for export, but import the rest of product even if the country holds an absolute advantage in all products.
The scholarly article I chose this week to discuss is, "State should target sectors where the country’s industry has a comparative advantage” written by T.T Ram Mohan. The article talks about Justin Yusif Lin’s book titled “The Quest for Prosperity”. The book attempts to give solutions to the world financial crisis. In the article he talks about Lin’s distinguishes between advanced nations and developing ones in the short-run, and how money stimulus will be effective for developing nations and not advanced nations, and also discuses Lin’s perspectives for Long-term growth. According to the article, government must identify the right growth sectors and support investment in those sectors, because it will lead to the overall growth in that economy. A key example is what Singapore did in the 10980’s when they focused on specialty chemicals that resulted in drawing developed nations into their economy (Mohan, 2012).
This seems pretty easy but has failed in many nations because it is hard to sometimes identify the sectors that truly have Comparative Advantage in an economy.
The theory encourages nations to engage in true free trade and to specialize in areas where they can be very effective and efficient at lower cost, instead of looking to bolster weak industries from foreign
Comparative Advantage is the benefit or advantage of an economy to be able to produce a commodity at a lesser opportunity cost. According to Satterlee (2009), opportunity cost is the value of what had to be given up, or forgone, to consume or achieve the object. This term simply means, countries should specialize in a certain class of products for export, but import the rest of product even if the country holds an absolute advantage in all products.
The scholarly article I chose this week to discuss is, "State should target sectors where the country’s industry has a comparative advantage” written by T.T Ram Mohan. The article talks about Justin Yusif Lin’s book titled “The Quest for Prosperity”. The book attempts to give solutions to the world financial crisis. In the article he talks about Lin’s distinguishes between advanced nations and developing ones in the short-run, and how money stimulus will be effective for developing nations and not advanced nations, and also discuses Lin’s perspectives for Long-term growth. According to the article, government must identify the right growth sectors and support investment in those sectors, because it will lead to the overall growth in that economy. A key example is what Singapore did in the 10980’s when they focused on specialty chemicals that resulted in drawing developed nations into their economy (Mohan, 2012).
This seems pretty easy but has failed in many nations because it is hard to sometimes identify the sectors that truly have Comparative Advantage in an economy.
The theory encourages nations to engage in true free trade and to specialize in areas where they can be very effective and efficient at lower cost, instead of looking to bolster weak industries from foreign
References: Economics Online. (n.d.). Comparative advantage. Retrieved from http://www.economicsonline.co.uk/Global_economics/Comparative_advantage.html Library of Economics and Liberty. (n.d.). Comparative advantage and the benefits of trade. Retrieved from http://www.econlib.org/library/Topics/College/comparativeadvantage.html Mohan, R. (2012). State should target sectors where the country’s industry has a comparative advantage.The Economic Times, Retrieved from http://articles.economictimes.indiatimes.com/2012-12-06/news/35647630_1_global-chemical-industry-industrial-policy-comparative-advantage Satterlee, B. C. (2009). Cross Border Commerce. Roanoke: Synergistics Inc. Slaughter, M. (2011). Comparative advantage and american jobs. Wall Street Journal, Retrieved from http://online.wsj.com/article/SB10001424052748703555804576102500952966450.html WATTENBERG, B. (2011). Immigrants and 'comparative advantage '. Wall Street Journal, Retrieved from http://online.wsj.com/article/SB10000872396390443477104577551250082215534.html