The economics of international comparative advantage in the modern world

Faulkner, David and Segal-Horn, Susan (2004). The economics of international comparative advantage in the modern world. European Business Journal, 16(1) pp. 20–31.

Abstract

The article considers the traditional economic theory of international trade based on the concept of comparative costs. Thus countries will export products in which they have advantages in comparative factor cost terms and import those in which other countries have such advantages. It notes that this theory needs to be applied with caution in the modern world. Firstly, advanced factors of production like the educational infrastructure may be more important than the traditional factors of land, labour and capital. Secondly, branded goods distort trade patterns, since they sell on perceived brand value rather than on cost plus. The economic theory of comparative costs still influences where multinationals choose to locate their activities, and still determines prices for commodities. However, international trade in branded goods now takes place in conditions in which comparative costs of factors of production, whether advanced or traditional, may play quite a minor part

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