We turn now to some of the issues to which this perspective can be
applied, beginning with a question central to international economics,
namely, how to construe comparative economic advantage. The theory of
comparative economic advantage is important because it implies that
freer trade will not impoverish nations by driving their production abroad
but enrich them by allowing each to specialize in the goods it produces
most efficiently and exchange them for even more goods from other
nations. It can be used to explain both the expansion of world trade and
the patterns of product specialization found across nations. The most
influential version of the theory focuses on the relative endowment of
basic factors (such as land, labor, and capital) found in a nation and suggests
that trade will lead a nation to specialize in the production
of goods
that
use its most abundant factors most intensively (Stolper and
Samuelson
1941).
However, recent developments have dealt a serious blow to this
account of comparative economic advantage. The most important of
these include the expansion of intra-industry trade and increases in the
international mobility of capital. If the theory is correct, nations should
not import and export high volumes of goods from the same sector; and
there is a real possibility that international movements of capital will
even out national factor endowments. As a result, some economists have
become skeptical about whether comparative advantages really exist, and
many have begun to seek other explanations for the expansion of trade
and the geographic distribution of production.
Some explain the growth of trade, and intra-industry trade in particular,
as the result
of efforts
to concentrate production
in order
to secure
returns
to scale (Helpmann 1984). Others explain the concentration of
particular
kinds of production
in some nations as the result
of firms’
efforts
to secure
the positive externalities generated by a group
of firms