The Heckscher-Ohlin model of international trade argues that comparative advantage arises from differences in factor endowments (Rogowski, p. 3). Factors, in this case, being basic tools of production. It states that a country’s abundant factors will cheaper to export its scarce factors easy to import, or in other words, goods will be produced where it is cheapest to produce them (Oatley, 2014, p. 52). Countries like the U.S., for example, have lots of capital with little labor, while China is the opposite. These different factors shape the cost of production, as these countries abundant factors will be cheaper to employ than its scarce factors.
Free trade has reduced the trade barrier between nations. Companies in different countries could trade freely, without any restriction on import or export. An example of free trade is The European Free Trade Association (EFTA), an intergovernmental organization which allows and promotes the benefit of free trade in Iceland, Liechtenstein, Norway and Switzerland. (EFTA,
It is international specialization that gives a manifestation of comparative advantage rule. This rule emphasizes the difference of production cost that is the key of trading. When participating in export, a country tends to export a product that is produced with the least disadvantages and import goods that do not have comparative
Introduction Comparative advantage refers to an economic theory that depicts the ability of an individual or a firm to produce services or goods at a lower opportunity cost in comparison to other competitors in the same industry. Firms that have the comparative advantage over others are associated with lower marginal costs before the commencement of trading. The aspect of comparative advantage enables manufacturers to sell their product at a lower cost in comparison with their rivals in the market thus resulting in higher profit margins due to increased sales. When establishing the comparative advantage, the monetary and resource costs are not compared. On the contrary, the opportunity costs of services and products across various agents are
The aim I want to pursue through this paper is identifying institution, other than “rule of law” and “governments”, as sources of comparative advantage. In order to fulfil my purpose I will analyze what is comparative advantage in international trade starting from Ricardo’s theory and moving on to Heckscher-Ohlin model. Firstly, for a better understanding, I am going to point out which are the differences between comparative and absolute advantage and which are the classical sources pointed out through the two models above named that determine the comparative advantage. Then I will move to the core part of this paper trying to analyze which are the institutions causing comparative advantage such as financial development, labor-market institutions
Free trade helps communication and bolsters the exchange between different corporations leading to more co-operation and innovation which has resulted in much more innovative products which are helping to combat climate change. Researchers widely agree that trade is responsible for more than 75% of technology transfers. It is similar to the approach of multi-national corporations (MNC 's), where technological expertise is exported to the host country to increase production and efficiency. The co-operation between corporations tend to emphasize on more environmentally friendly production methods leading to better and more eco-friendly goods to be produced. Another possible way of looking at it is the increased transfer of modern (and thus cleaner)
Some countries produce more than their own requirement. They sell this surplus production in other countries and avoid the occurrence of deflationary pressures in the domestic economy. (v) International Trade encourages countries to compete with each other in the production of different kinds of goods at low cost of production. Competitiveness stimulates productivity. (vi) It widens the extent of market.
Heckscher-Ohlin Theory Comparative advantage comes up from differences in national factor endowments, such as land, labour, or capital, as opposite to Neoclassical trade theory which stresses productivity of products being produced for consumption. This theory suggest that the country should focus on exporting products using its scarce resources and brings across a free trade principle where goods will be moving freely without any trade barriers implying that this would make flow of resources in and out more demand and more supply will increase the country’s economy(Eli Heckscher 1919 &Bertil Ohlin1933). 2.4. New Trade Theory Achievement of economies of in 1970’s scale, trade can increase the different sorts of goods available for consumption and those goods can be in a decreased affordable price. Further, the ability to capture economies of scale before anyone else is an important first-mover advantage.
He offered an idea that how a country might play a game strategically and could be successful in extracting great levels of revenues from trade, by implementing new trade theories. The comparative advantage theory of Ricardian gained a new aspect as Porter emphasized on development of comparative advantage or innovativeness by improving to sustain greater shares of market. Therefore, the idea of productivity that can be work to attain greater levels of international competitiveness (IC) emerged [Porter (1990)]. Indices based on productivity are extensively used in the measurement of competitiveness. As per Porter point of view productivity is the most valuable thought in international competitiveness.