Comparative Advantage

The global financial crisis has affected severely on Vietnamese exports. After joining the WTO, Vietnam’s trade has become depend on global

Dave gives “The Theory of Comparative Advantage” a different name and calls it “The Roundabout Way to Wealth”.(p.10) He says that this theory deals with the idea that even a nation which is relatively poor at doing everything, still do some things relatively well. “And a nation that is really good at many things should still specialize in producing some items and import the rest”.(p.10) Time is the ultimate scarce resource. Investing time in doing something means having less time in doing

Define the concept of comparative advantage. How can a country gain or lose its comparative advantage in the production of a good?

Due to the differences between the countries in its profitable fundamentals; the International Trade occurs. The contracts between the countries consider as the primary driver of the global exchange. These contracts concluded on the basis of the countries beneficial elements and advantages. Each international trade between the countries depends on numerous focal points of this exchange process. The economics and producers effectiveness measured by absolute advantage for these economics/producers. For example; if the producer needs lesser amount of contributions/inputs to provide specific product, then this producer has an absolute advantage in producing

Which is cost difference determines the patterns of international trade. Absolute advantage is trade benefits when each country is at least cost producer of one of the goods being traded. In the 1800s, David Ricardo developed the theory of comparative advantage to measure gains from trades. This theory is based on comparative advantage and it states each nation should specialize in production of those goods for which its relatively more efficient with a lower opportunity cost.

The issue and concept addressed in the case study is trade theories such as competitive advantages and also the benefits and costs brought by international trade and its related government policies.

The Ricardian trade model is a simple yet powerful theory that refutes common fallacies about the causations of trade flows. It illustrates that, instead of absolute advantage, it is comparative advantage that brings forth the gains from trade. Comparative advantage refers to the ability to produce a product at a lower opportunity cost than another. This ability is the result of

The country can maximize their wealth by putting the resources in the most competitive industries. Government created comparative advantage rather than free trade because now easier moves the production processes and the machines into countries that can produce more goods (Yeager & Tuereck, 1984). However, many countries now move to new trade theory suggests the ability firms to limit the number of competitors associated with economic scale (reduction of costs with a large scale of output) (Krugman, 1992). The comparative advantage occurs when two-way trade in identical products, it will useful where economic scale is important, but it will create problem with this model. As a result, government must intervene in international trade for protection to domestic firms (Krugman, 1990)

Vietnam is 12th nation in the world with more population and its economic growth is expected to keep increasing in the following years. Thanks to the Doi Moi economic reforms since 1994 the country’s GDP is the third in growth rate in Asia, the inflation has decreased from 775% to 14% and the FDI is everyday more important.

Apart from foreign direct investment exports has been one of the determinants of upholding higher economic growth, better schooling and life expectancy due to their assimilation in the world economy. Developing countries can enlarge their markets by allowing firms exporting and achieving economies of scale. Exporting is one of the prominent channels of technology transfer to other nations (Pack. 1993) . Normally industrial policies are prepared to stimulate exports. The export competitiveness or export performance generally can be measured by several factors, for instance, real exchange rate, comparative advantage, terms of trade, geographic concentration, trade policies, world income etc. We have used Revealed Comparative Advantage and gravity

Vietnam is a densely populated developing country in the Southeast Asia. Since independence in 1975, though launching of several economic reforms and extensive efforts for macroeconomic stability, infrastructure development and environmental sustainability, Vietnam has transformed from one of the poorest country in the world to a lower middle income country with current GDP of $186.2 billion (Tradingeconomics, 2016). During the past two decades, Vietnam has become one of the leader in agricultural sectors and a foreign investment attractive destination. The country has had made impressive progress with GDP growth of 5.5 percent in 1990s to 6.4 percent in 2000s, making Vietnam one of the fastest growing countries in the world and it is expected to be more strengthen in the near future (World Bank [WB], 2016). Recently, the nation has concluded the Trans-Pacific Partnership (“TPP”) free trade agreement negotiation along with other 12 nations, which create more opportunities for the country to integrate into regional and global economies. This essay will briefly discuss about Vietnam’s economic transformation in general and particularly with its trading pattern in the past two decades.

The concept of absolute advantage is one of the most fundamental areas of concern in the study of economics. In its basic meaning, absolute advantage refers to the ability of one individual or party to produce more of a particular good or service than other competitors given the same amount of resources. In this regard, absolute advantage becomes a very important aspect in the concept of international trade as it clearly defines the different areas where countries should specialize in order to maximize their productivity and enhance international trade. The principle of absolute advantage was first elucidated by Adam Smith in his study of international trade using labor and capital as the only factor inputs(Free, 2010).

Having joined the World Trade Organization (WTO) in November 17, 2006 opens to Vietnam lots of advantages regarding the economy. According to the major principles, joining WTO brings Vietnam to the expansion of market and increase in exports. Especially in agriculture and textiles, WTO has set out various measures to gradually eliminate

This study was conducted to (a) determine which market is the most dynamic for Thai exports, (b) measure the intensity of trade between Thailand and its regional trading partners and (c) test whether the modified Revealed Comparative Advantage (RCA) index, which was developed based on the gravity trade model, is applicable for measuring Thailand’s competitiveness resulting from its border trade policy. The RCA index is typically applied based on three conceptual points. First, the trade balance index (TBI) can be used to indicate whether GMS countries are net exporters or importers. Second, the trade balance is typically decomposed by product and country (i.e., bilateral trade balance). Relevance refers to the degree of concentration of trade imbalances

The principle of comparative advantage provides a simplified theory explaining why free trade is possible, even when one country has an economic disadvantage. Both the Ricardian and Heckscher-Ohlin theories rely on fixed economic assumptions of constant return and perfect competition. However, intuitively the basic principle of business is to increase returns through innovation, improving processes and technology or increasing economies of scale. Organizations understand they control pricing and are price setters, rather than price takers as suggested by perfect competition (Krugman & Obstfeld, 2003). The idea of increasing returns and imperfect competition challenge the foundations of comparative advantage.