Danger of over-specialising - reason for protection, Managerial Economics

Danger of over-specialising 

A country may feel that in its long-term interests it should not be too specialized.

A country may not wish to abandon production of certain key commodities even though the foreign product is more competitive, because it is then too dependent on imports of that good.  In the future, its price or supplies may diminish.  It is for this reason that countries wish to remain largely self-sufficient in food.

An exporting country may not wish to become overspecialized in a particular product.  Such over specialization may make sense now, but in the future, demand may fall and the country will suffer disproportionally.  It is for this reason that many developing countries choose not to rely solely on their comparative advantage; they wish to diversify into other goods as an: insurance policy".

Posted Date: 11/30/2012 4:59:35 AM | Location : United States

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