Technology, Human Resources and International Competition

Abstract

It is never an easy task for economists to remind policy-makers of the relevance of the principle of comparative cost or comparative advantage. It is not always understood and, when it is, it is rarely adopted without reservations. This principle — a triumph of economic logic — rationalises the mutual beneficiality of free international trade regardless of country sizes or degrees of affluence. The principle is regarded as being of fundamental importance in connection with the major issues in international economic relations, e.g. trade preferences for poor countries, multilateral trade negotiations, adjustment assistance policies and, of course, the continuing national arguments over protectionism versus liberal trade policies. But to give the principle concrete form, to make it operational, it has to be incorporated in a theory which explains the source of comparative advantage. The fact is, however, that economists have developed a bewildering variety of theories to explain the determinants of international specialisation and trade in manufactured goods.