Source of comparative advantage, International Economics


The Source of Comparative Advantage can be understood as follows:

The source of comparative advantage could be productivity differential (Ricardo) or differences in the factor endowments (Hechshcer-Ohlin). In the latter case, given the two countries (one rich in labor and one rich in capital, and a labor-intensive good and a capital intensive good, the labour abundant country will have comparative advantage in production of the labour-intensive good while on the other hand the capital abundant country will have comparative advantage in the capital-intensive good.

The natural policy prescription emanating from above argument was that the LICs which are often abundant in labor should produce primary products while rich countries alone must produce capital-intensive goods.



Posted Date: 7/19/2012 4:16:24 AM | Location : United States

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