With the high cost of living affecting most countries of the world, nations and individuals rely on the comparative advantage to enjoy in the adverse situations. The concept of comparative advantage is where traders conduct their trade without relying on cost efficiency. It is based on producing goods at the least opportunity cost (Honggue, 2018). In this respect, the producer or the manufacturer possesses enough natural resources and a superior supply chain. Even though the process looks more complex both in the simplified form and in practice, countries such as the United States have been enjoying high living standards that are enjoyed from the comparative advantage in their space in an international trade.
According to economic theories, comparative advantage items are in terms of goods than in services in most countries. However, in some countries, they also exist as services. Some nations are capable of producing particular goods in high volumes and quantities which is crucial in international business. Such countries gain from comparative advantage based on the fact that the global economy lacks equal distribution of resources. The comparative advantage is important as countries that produce high goods are able to supply to the global economy that has a limited supply of certain goods. (Nath and Goswami, 2018). Comparative advantage can have a negative implication when a country specializes too much. This can be brought about by sanctions being imposed on a country due to international conflicts. This would affect the country in a way that the country would not be able to import essential goods it needs.
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In terms of global advantage, countries that benefit from comparative advantage are for example nations that produce oil. Countries that have vast oil resources are able to share it with other countries that are able to refine better than other countries that can only produce. In this respect, the countries with oil reserves have a comparative advantage because their oil resources occur naturally. Consequently, countries like Mexico, Kuwait, and, Saud Arabia that are known as chemical producers focus on their local production or the comparative advantage (Nath and Goswami, 2018). Unfortunately, there are countries whose citizens prefer that their countries produce and manufacture their products and then finally sell to their local citizens. Such nations do not enjoy a comparative advantage, and their economic strategies are short term. Arguably, trade restrictions are seen to boost local markets as it hinders the growth of international business. The countries that do not enjoy comparative advantage waste a lot of resources because they produce their goods inefficiently. Also, their citizens are seen to pay more for the products and services that are not generated within their borders.
According to many economists around the world, despite the fact that the application of the concept of comparative advantage does not work for many countries when it is still put in papers because of its complexity, the idea is the most beneficial when putting in real life practice. It is better compared to countries where there is no trade (Mimbang and Stone, 2018). Further, it does not imply such countries cannot diversify into other products. The concepts of comparative advantage do not however put into consideration the fact that different trade levels result in different outcomes. But, in the long run, comparative advantage proves better for countries that do not practice trade at all.
Countries are advised to keenly analyze the goods they can produce proficiently before they engage in any international business or market. Instead of only focusing on goods they can trade on cost-effectively, manufacturers should consider their strengths and weaknesses in discovering goods they can efficiently produce and with time their consumers will gain more over time.
References
Honggue Lee. (2018). Equivalence between Increasing Returns and Comparative Advantage as the Determinants of Intra-industry Trade: An Industry Analysis for Korea. East Asian Economic Review, Vol 22, Iss 1, Pp 75-114 (2018) , (1), 75.
Mimbang, J. B., Chariot, D., & Stone, J. (2016). The Theory of Comparative Advantage : Why Specialisation Is the Key to Success . Cork: 50Minutes.com.
Nath, H. K., & Goswami, B. (2018). India’s comparative advantages in services trade. Eurasian Economic Review , 8 (2), 323–342.
