Gains from Specialization in Trade
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Specialization in Trade
Of the numerous articles that I reviewed, the one thing that they all implied was that the gains from trade are as a result of the specialization in production of goods. Some of the articles I found praised the theory of comparative advantage. If a country is more efficient in the production of one good than any other good, then it should focus on the production of that one good and import the other commodities that it wants. Also productivity levels in relation to how much is invested in an industry as well as how much technology you have. Some argue that in order for the theory of competitive advantage to work, labor capital and technology must not move beyond the borders of that country. The absolute advantage of cheap labor in other countries promotes outsourcing of labor in American industry respectively taking over from competitive advantage. Some countries have an overall absolute advantage in trade when compared to other countries.
The most interesting article I found was an editorial from the “Canadian national post”. This editorial rendered the greatest significance for specialization and what it meant for the productivity of Canadian industry and income levels of the country’s citizens. The perspective was analyzed through a real world test; a domestic market deemed to small for efficient specialization was set free as a result of the Canada-U.S. auto pact of 1965, set up free trade for North American car companies. The article is a prime example of a specialization success story made possible through the doors of free trade, resulting in higher productivity higher wages and a boom in Canadian Industries pursuit of specialization. “Trade means specialization, specialization means higher productivity and higher productivity means higher wages and incomes.” When you think about it this makes perfect sense. The best way for me to understand the process was to look at it in small terms by applying specialization to Henry Ford and his creation of