Is India exploiting its comparative advantage? – Essay
The theory of comparative advantage states that if two countries each specialise in the product with the lowest opportunity cost, and then trade, real incomes will increase for both countries. India is one of the world’s largest countries by both land mass and population. It is located in South Asia, bordering the Arabian Sea. India is considered one of the major forces in the global economic market although it is still a developing economy. India receives huge amounts of FDI (foreign direct investment) due to its skilled workforce, cheap labour and increasing size of the national market from the rising number of middle-class citizens. One sector that India is specialising a particular amount in is the service sector. Many developed countries are also specialised in this sector, which provides a lot of competition. A segment of the service sector that India has specialised the most in is call centres, many of which are for MNC’s. India is particularly effective at this due to many factors, one of which is their knowledge of technologies relevant to these call centres, with a huge amount of specialisation in high tech products and services, it is cheap for India to provide build the centres, whilst keeping a high standard. India also has a huge workforce, the majority of which speak fluent English, which is essential when opening call centres for MNC’s. The labour in India is also much cheaper than labour in many developed countries which provides an advantage over many other countries when setting these up. Specialising in call centres is a good use of India’s comparative advantage as it is a low opportunity cost and is more efficient than many other countries. The cheap, skilled and English speaking workforce possessed by India is a key factor in many of its specialisations. The workforce is a huge comparative advantage as they demand much lower wages than developed countries, yet are a huge proportion are...
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