A Synthesis

Whether a country would export certain types of products would depend upon a number of factors natural resources, availability of labor and its productivity, technical skill and equipment, adequacy of capital, enterprise and industrial traditions. Comparative advantage is the combined result of all these factors. For example, the advantage of plentiful and cheap labor may by offset if high cost labor is provided with modern capital equipment to result in increased labor productivity and lower per unit labor cost. Wages in the USA are higher than India or S Korea but due to higher productivity in the USA the per unit labor cost in some industries may be lower. Korean manufacturers can compete most successfully in the USA and other markets in completely finished articles, such as knitted sweaters, men’s suit and plastic household goods, where cheap labor in final processing stages gives them an advantage. But where largely automatic process can eliminate labor, the USA will have an advantage.

Comparative advantages enjoyed by different countries and their actual pattern of specialization undergo a continuous process of change due to two reasons: (1) one of them is changes in the factor in the factor supply. Of course, such changes are rather slow. This is especially true of land, less so of labor, due to possibilities of migration which is subject to Government regulation, and the least of all of capital. However changes in national boundaries may bring a radical change in the factor supply of countries concerned. This has been so in the case of India by the separation of Burma and then of Pakistan. (2) Rapid technological developments and the progress of scientific research and their application might change the relative advantages enjoyed by different countries and the fields of their specialization. New methods of cultivation and extraction have changed the productive value of natural resources. The applications of tractors and fertilizers may improve a country’s comparative advantage in agriculture. Also modern capital equipment may be used to improve the industrial structure of a country. For example, Japan’s advance in technology has considerably narrowed down the advantage which the USA enjoyed over Japan as will appear from the large exports of Japanese capital equipment and electronics to the USA. Japan’s share of US car market increased to such an extent in 1980 that US manufacturers had to apply to the US International Trade Commission for protection (but it was not granted). Swiss share of total world’s sales of watches fell from 70% in 1950 to 40% in 1970 and to 30% in 1980. Thus, a country’s production pattern or its capacity to sell might undergo changes and its economic structure may have to be adjusted from time to time to suit the needs of the changing situation.

In recent years, there has been a rapid change in the comparative advantage enjoyed by various nations due to following factors: (a) tendency of manufacturing plants to become larger and more specialized , (b) shifts in the demand pattern in industrial countries, (c) almost free trade amongst industrial countries of Europe and global reduction of tariffs on industrial products, (d) exploitation of natural resources and industrial development in developing countries , and (e) increasing labor costs in developed countries. As a result, the developing countries have gained a comparative advantage in ma number of areas. For example, the developing countries have been able to shift from the export of raw hides and skins to leather and manufactures in spite of the substantial trade barriers erected by the developed countri0es to protect their domestic leather industry. The number of products where developing countries may have a comparative advantage is bound to increase in course of time.