Good Example Of Comparative Advantage Of A Small Country Essay
A country has an absolute advantage, if there is such a product, which per unit of input, it can produce more than other countries. Yet concerning international trade, absolute advantage is not as essential as comparative. According to the theory of Heckscher – Olin, a country is in abundance with products, if there is a larger quantity of them compared with the quantity of other goods. Therefore, a small country should concentrate its efforts on the production and export of goods in abundance.
As long as the ratio of domestic prices differences between countries are retained, each country will have a comparative advantage, i.e. for these countries it will be always possible to find products, production of which will be more profitable than the rest of the production at the current ratio of costs.
If a small country tried to make every necessary good, creating the whole range of industries, none of these sectors could possibly reach a scope that would allow to use the technology of mass production. That is why it is also essential for a country to decide on its specialization. The country’s educational system should be flexible enough to create versatile, easily teachable labor force, which will be able to orient in a rapidly changing world.
But, despite the economic contraindications, today there are many examples of small countries, which for whatever political reasons, organize their own international airlines or even metallurgical plants. These businesses tend to survive through state subsidies, i.e. they tend to drain and not to replenish the budget of the country. In any case, a country, small or big, is a participant of global trade network, and should regard all the pros and cons of choosing particular specialization.