Sources of Comparative Advantage

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International Trade

Course (61 videos)

Sources of Comparative Advantage

This video discusses several factors that contribute to comparative advantage. Differences in geography, climate and natural resources give some countries a comparative advantage over others. In fact, Classical economist David Ricardo first wrote about this in the context of why it made sense for Portugal to produce wine and for England to produce cloth. Different countries may also have different proportions of capital to labor, or high-skill labor to low-skill labor. Increasing returns to scale, which are created by trade as opposed to existing naturally before trade, shows that specialization increases productivity. Finally, as we've discussed in other courses, institutions matter!

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