Comparative Advantage - Essay

1530 Words7 Pages
Surname: Salmon
First name: Tati
Student number : 12421179
Does the idea of comparative advantage provide a good explanation of current patterns of international trade?
For the last two centuries the international trade evolved a lot and many economists tried to explain it. One of the first theories that attempted to explain the international trade pattern was the Absolute advantage theory. A.Smith was a great economist; he is the one who created this theory. For A. Smith countries should specialize in products in which they have an absolute advantage. It was a good Theory but it was excluding countries that did not have any absolute advantage. David Ricardo another great British economist found this loophole in Smith’s theory and
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That would why Germany and France are both exporting cars to each other’s country. This example shows that two countries may trade the same product (cars in this example) because customers want more choices, it is an era of marketing, where companies are studying customers’ needs, and we just cannot sell any goods without even knowing if there will be a demand. The customers’ needs have evolved and so did the international trade. Nowadays Intra-industry trade is a reality and the comparative advantage theory cannot explain it.

We saw that countries may trade the same kind of products and that it goes against the comparative advantage theory. Now we will see that some countries may be the victim of MNC’s strategies.
With the Globalization, the Multinational Corporations (MNC) has now the possibility to use global strategies. Indeed, now the MNCs can go everywhere. It means that the international trade does not really depend of a country, because now MNCs can use horizontal strategy , it is when MNCs put a subsidiary company where they can sell and manufacture their goods , they can also use a vertical strategy , it’s when an MNCs put subsidiary company in place where they can gather raw materials at low cost and then send them to their factories. We can take the example of Nike which makes
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