Comparative Advantage

Topics: Economics, International trade, United States Pages: 2 (711 words) Published: March 19, 2011
1. What does the article say about the importance of international economics, the principle of comparative advantage, and modern trade theory? Explain. The article shows us how India diversified its economy by creating new avenues of trade when its manufacturing market took a dive nose. India saw there was a need in the international market for outsourcing, call centers and engineering talents and it took advantage of it by harnessing its labor abundance to provide them with a competitive advantage.. A country has the comparative advantage of producing a good if the opportunity cost of producing that good is lower in that country than it is in another country. India has now become the international leader in providing these goods and services to the big powers especially the U.S., because it can produce them cheaply because of its abundance of low cost labor. The Modern Day Theory is being exercised in India through its increased production and greater prosperity, derived from its market diversification. 2. Discuss how producing based on comparative advantage can increase domestic employment in India. The resurgence of India’s manufacturing business is already showing tremendous growth, as is stated by its Commerce Ministry. Its total exports, mostly manufactured goods are at 26%, while the manufacturing sector is growing at 9.4% (Giridharadas, 2006). India having the second largest world population, nearing 1.2 billion people, is utilizing its comparative advantage of labor abundance. Historically, China has been the manufacturing Mecca, due to its surplus of low skilled work force. As its economy grew and companies kept utilizing its resource of human capital, scarcity of the resources started creeping up and wages started to climb. This is causing companies to develop a lot more interest in India where wages are a lot cheaper than China for manufacturing jobs. India, whose manufacturing business had been crippled by labor laws, fragile infrastructure and...

References: Carbaugh, R.J. (2007). International economics.12th ed., OH: Thomson Higher Education
Giridharadas, A. (2006). India, known for outsourcing, expands in industry. Retrieved January 6, 2011 from
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