1. Prosperity and Resilience: Diverse Production and Comparative Advantage in Modern Economies
- Author:
- David Henig and Anna Guildea
- Publication Date:
- 01-2022
- Content Type:
- Working Paper
- Institution:
- European Centre for International Political Economy (ECIPE)
- Abstract:
- A common version of trade theory suggests that countries will specialise in a limited number of products. Using the example of David Ricardo from 1817, England specialises in cloth and Portugal in producing wine – and then they trade with each other to mutual benefit. However, this is a crude version of comparative advantage that routinely leads to political concerns about trade. Today the prime concern is that Europe and other developed countries have become too dependent on China by allowing the logic of comparative advantage to work. In short, trade has made us vulnerable. The observed reality is different. Most advanced economies produce and export a broad range of goods and services. Their governments have similar aspirations to develop and support diverse manufacturing and services, including in the most traded global sectors such as pharmaceuticals, automotive, business services, and food and drink. Modern specialisation comes in countries producing various, but not all, products within global supply chains. Patterns of trade suggest such specialisation has allowed countries to both grow and become resilient to individual shocks. Knowledge and ownership of the whole supply chain is more important than producing everything.
- Topic:
- Globalization, Economy, Services, Resilience, WTO, and Production
- Political Geography:
- Europe and Global Focus