The decline in a nation’s comparative advantage in 2018 is a multifaceted economic issue that COMPARE.EDU.VN will address, exploring various influencing factors. This involves analyzing shifts in global trade, technological advancements, and domestic policies. We’ll also delve into how countries can regain competitiveness through innovation and strategic investments, examining relevant economic indicators, trade policies, and industry-specific challenges, including lost competitiveness and pricing power.
1. What Factors Led a Country to Lose Comparative Advantage in 2018?
A country might lose comparative advantage in 2018 due to a combination of factors, including currency appreciation, rising labor costs, technological advancements in other countries, and shifts in global demand. Currency appreciation makes a country’s exports more expensive, reducing their competitiveness.
1.1 Currency Appreciation
Currency appreciation erodes export competitiveness by making products pricier for international buyers. For example, a sharp appreciation of the Japanese Yen following the 1985 Plaza Accord led to Japanese companies losing competitiveness in final electronics goods. The yen’s value increased by 60%, impacting pricing power and profitability.
1.2 Rising Labor Costs
Rising labor costs can make domestic production more expensive, thereby reducing a country’s ability to compete with nations that have lower labor expenses. This dynamic shifts the cost advantage to countries with more affordable labor.
1.3 Technological Advancements
Technological advancements in other nations can lead to increased efficiency and innovation, outcompeting industries in countries that lag in adopting these new technologies. This can cause a significant shift in global market dynamics, favoring technologically advanced countries.
1.4 Shifts in Global Demand
Shifts in global demand can change the competitive landscape. If demand for a country’s primary exports decreases, it can lose its comparative advantage. These changes can happen due to evolving consumer preferences or the emergence of alternative products.
2. How Does Currency Appreciation Affect Comparative Advantage?
Currency appreciation increases the price of a country’s exports, making them less competitive in international markets. This can lead to a decline in export volumes and a loss of market share.
2.1 Impact on Export Prices
When a country’s currency appreciates, its export prices rise in foreign currency terms. This makes domestic goods more expensive for international buyers. For instance, in Japan, Yen appreciations led to one-for-one decreases in Yen export prices, as noted by Thorbecke (2019).
2.2 Reduction in Export Volumes
Higher export prices can reduce export volumes. As Thorbecke (2019) noted, a 10% appreciation could reduce electronic parts and components exports by 2.1 to 2.7%.
2.3 Loss of Market Share
Reduced export volumes can lead to a loss of market share, as other countries with more competitive exchange rates capture the demand.
2.4 Example: Japan’s Electronics Industry
Japan’s electronics industry experienced this firsthand after the 1985 Plaza Accord. The yen’s appreciation made Japanese electronics more expensive, leading companies to lose competitiveness in final electronics goods.
3. What Role Do Labor Costs Play in Comparative Advantage?
Lower labor costs can provide a significant competitive advantage, especially in labor-intensive industries. Countries with lower labor costs can produce goods and services more cheaply, enhancing their export competitiveness.
3.1 Production Costs
Lower labor costs directly reduce production costs. This allows companies to offer products at lower prices, increasing their appeal in international markets.
3.2 Competitive Edge
Countries with lower labor costs gain a competitive edge in industries where labor is a significant component of total costs. This often includes manufacturing, textiles, and agriculture.
3.3 Example: Manufacturing Shift
Many manufacturing industries have shifted from developed countries with high labor costs to developing countries with lower labor costs. This shift has enabled companies to lower production costs and increase profitability.
4. How Do Technological Advancements Impact a Country’s Comparative Advantage?
Technological advancements drive innovation and efficiency, altering the global competitive landscape. Countries that invest in and adopt new technologies can enhance their productivity and develop new products, increasing their comparative advantage.
4.1 Increased Productivity
Technological advancements increase productivity, allowing companies to produce more goods and services with the same or fewer resources. This drives down costs and enhances competitiveness.
4.2 Innovation
Technological advancements foster innovation, leading to the development of new products and industries. Countries that are at the forefront of technology can create new markets and capture significant market share.
4.3 Example: South Korea and Taiwan
South Korea and Taiwan have capitalized on technological advancements to become major exporters of electronic parts and components. Their investments in technology have enabled them to outcompete other countries, including Japan, in certain segments of the electronics industry.
5. What Are Shifts in Global Demand, and How Do They Affect Trade?
Shifts in global demand refer to changes in the preferences and needs of consumers and businesses worldwide. These shifts can be influenced by various factors, including economic growth, changing demographics, and evolving consumer tastes.
5.1 Changing Consumer Preferences
Changing consumer preferences can shift demand away from traditional products and towards new or innovative offerings. This can lead to a decline in demand for a country’s primary exports if it fails to adapt to these changes.
5.2 Economic Growth in Emerging Markets
Economic growth in emerging markets can create new demand for different types of goods and services. Countries that can quickly respond to this demand can gain a competitive advantage.
5.3 Example: Decline in Demand for Commodities
If global demand for commodities decreases due to increased efficiency or the development of alternative materials, countries that rely heavily on commodity exports may experience a decline in their comparative advantage.
6. What Happened in Japan to Cause a Loss of Comparative Advantage?
Japan’s loss of comparative advantage in the electronics industry can be attributed to a combination of factors, including currency appreciation, competition from Korea and Taiwan, and a failure to maintain investment in key areas.
6.1 Currency Appreciation and the Plaza Accord
The Plaza Accord in 1985 led to a significant appreciation of the Yen, making Japanese exports more expensive. This reduced the competitiveness of Japanese electronics goods, especially in price-sensitive markets.
6.2 Competition from Korea and Taiwan
Korea and Taiwan emerged as strong competitors in the electronics industry. Their investments in technology and lower labor costs allowed them to outcompete Japanese firms in several product categories.
6.3 Lack of Investment
Following the profitability shock caused by currency appreciation and increased competition, Japanese firms reduced their investment in tangible fixed assets. This lack of investment hindered their ability to maintain competitiveness and innovate.
6.4 Thorbecke’s Analysis
Thorbecke’s (2019) research indicates that Yen appreciations led to significant decreases in semiconductor stock prices, highlighting the adverse impact on profitability. Additionally, the weakening of the New Taiwan dollar after the Global Crisis further harmed Japanese parts and components makers.
7. How Can a Country Regain Its Comparative Advantage?
A country can regain its comparative advantage through strategic investments in technology, education, and infrastructure, as well as through policies that promote innovation and competitiveness.
7.1 Investment in Technology
Investing in research and development and adopting new technologies can enhance productivity and drive innovation. This can help countries develop new products and industries, regaining their competitive edge.
7.2 Education and Skill Development
Investing in education and skill development can improve the quality of the workforce, enhancing productivity and competitiveness. This includes promoting STEM education and vocational training.
7.3 Infrastructure Development
Investing in infrastructure, such as transportation and communication networks, can reduce costs and improve efficiency. This can make a country more attractive for investment and trade.
7.4 Policy Reforms
Implementing policy reforms that promote innovation, reduce regulatory burdens, and foster competition can create a more favorable business environment. This can attract investment and support the growth of new industries.
8. What Policies Can Promote Innovation and Competitiveness?
Policies that promote innovation and competitiveness include tax incentives for research and development, intellectual property protection, and deregulation to reduce barriers to entry.
8.1 Tax Incentives for R&D
Providing tax incentives for research and development can encourage companies to invest in innovation, leading to the development of new technologies and products.
8.2 Intellectual Property Protection
Protecting intellectual property rights can incentivize innovation by ensuring that companies can benefit from their inventions and creations.
8.3 Deregulation
Reducing regulatory burdens can lower costs and increase efficiency, making it easier for companies to compete in the global market.
8.4 Support for Startups
Providing support for startups and small businesses can foster innovation and create new jobs. This can include access to funding, mentorship programs, and incubators.
9. What Are Examples of Countries That Successfully Regained Comparative Advantage?
Several countries have successfully regained their comparative advantage through strategic investments and policy reforms. Examples include South Korea, Taiwan, and Singapore.
9.1 South Korea
South Korea has successfully transformed its economy from a low-cost manufacturer to a high-tech powerhouse through strategic investments in technology and education.
9.2 Taiwan
Taiwan has become a global leader in the electronics industry through its focus on innovation and its support for small and medium-sized enterprises.
9.3 Singapore
Singapore has maintained its competitiveness by investing in education, infrastructure, and a business-friendly regulatory environment.
10. How Does Globalization Impact Comparative Advantage?
Globalization intensifies competition, making it easier for companies to shift production to countries with lower costs. This can erode a country’s comparative advantage if it fails to adapt and innovate.
10.1 Increased Competition
Globalization increases competition by opening up markets and making it easier for companies to operate internationally. This can put pressure on companies to lower costs and improve efficiency.
10.2 Supply Chain Integration
Globalization facilitates the integration of global supply chains, allowing companies to source inputs from the lowest-cost locations. This can shift production away from countries with higher costs.
10.3 Need for Innovation
In a globalized world, countries must continuously innovate to maintain their comparative advantage. This requires investing in research and development, education, and infrastructure.
11. How Can a Country Leverage Its Natural Resources for Comparative Advantage?
A country can leverage its natural resources by developing industries that add value to these resources, such as manufacturing and processing.
11.1 Resource-Based Industries
Developing resource-based industries can create jobs and generate export revenue. This requires investing in technology and infrastructure to process and refine natural resources.
11.2 Diversification
Diversifying the economy beyond natural resources can reduce vulnerability to commodity price fluctuations. This requires investing in other sectors, such as manufacturing and services.
11.3 Sustainable Resource Management
Managing natural resources sustainably can ensure long-term economic benefits. This includes implementing policies to protect the environment and conserve resources.
12. What Are the Risks of Relying Solely on Natural Resources?
Relying solely on natural resources can make a country vulnerable to commodity price fluctuations, which can lead to economic instability.
12.1 Commodity Price Volatility
Commodity prices can be highly volatile, fluctuating in response to changes in supply and demand. This can make it difficult for countries that rely on commodity exports to plan for the future.
12.2 Dutch Disease
The Dutch Disease refers to the phenomenon where a country’s economy becomes overly reliant on natural resources, leading to a decline in other sectors, such as manufacturing and agriculture.
12.3 Need for Diversification
To mitigate these risks, countries should diversify their economies and invest in other sectors that can generate sustainable growth.
13. How Does Education Affect Comparative Advantage?
A well-educated workforce is more productive and adaptable, enabling a country to compete in high-value-added industries.
13.1 Productivity
A well-educated workforce is more productive, capable of using technology effectively and innovating new products and processes.
13.2 Adaptability
An educated workforce is more adaptable to changing economic conditions, able to learn new skills and transition to new industries.
13.3 Innovation
Education fosters innovation by providing individuals with the knowledge and skills needed to create new products and services.
13.4 Example: Investment in STEM Education
Countries that invest in STEM (science, technology, engineering, and mathematics) education are more likely to develop a competitive advantage in high-tech industries.
14. What Is the Role of Infrastructure in Comparative Advantage?
Adequate infrastructure, including transportation and communication networks, reduces costs and improves efficiency, making a country more attractive for investment and trade.
14.1 Transportation Networks
Efficient transportation networks, such as highways, railways, and ports, reduce the cost of moving goods and services, enhancing competitiveness.
14.2 Communication Networks
Reliable communication networks, such as broadband internet, facilitate the exchange of information and ideas, supporting innovation and productivity.
14.3 Energy Infrastructure
Adequate energy infrastructure ensures a stable and affordable supply of energy, which is essential for industrial production.
14.4 Example: China’s Infrastructure Investment
China’s massive investment in infrastructure has played a key role in its economic growth, reducing costs and improving efficiency.
15. How Do Trade Agreements Affect Comparative Advantage?
Trade agreements can alter a country’s comparative advantage by reducing tariffs and other trade barriers, opening up new markets and increasing competition.
15.1 Reduced Tariffs
Reducing tariffs makes it easier for countries to export goods and services, increasing their competitiveness.
15.2 Market Access
Trade agreements provide countries with access to new markets, allowing them to expand their exports and increase their market share.
15.3 Increased Competition
Trade agreements also increase competition by exposing domestic industries to foreign competition. This can spur innovation and improve efficiency.
15.4 Example: NAFTA
The North American Free Trade Agreement (NAFTA) has had a significant impact on the economies of the United States, Canada, and Mexico, altering their trade patterns and comparative advantages.
16. How Can Small and Medium Enterprises (SMEs) Enhance Comparative Advantage?
Small and medium enterprises (SMEs) can enhance comparative advantage by fostering innovation, creating jobs, and contributing to economic diversification.
16.1 Innovation
SMEs are often more innovative than large corporations, developing new products and services that can enhance a country’s competitiveness.
16.2 Job Creation
SMEs are a major source of job creation, providing employment opportunities for a large segment of the population.
16.3 Economic Diversification
SMEs contribute to economic diversification by operating in a wide range of industries, reducing a country’s reliance on a few key sectors.
16.4 Policy Support
Governments can support SMEs by providing access to funding, mentorship programs, and training opportunities.
17. What Is the Impact of Exchange Rate Policies on Comparative Advantage?
Exchange rate policies can be used to influence a country’s competitiveness by affecting the relative price of its exports.
17.1 Currency Devaluation
Currency devaluation can make a country’s exports cheaper, increasing their competitiveness. However, it can also increase the cost of imports, leading to inflation.
17.2 Managed Exchange Rates
Managed exchange rates allow governments to intervene in the foreign exchange market to influence the value of their currency. This can be used to maintain competitiveness, but it can also lead to currency manipulation.
17.3 Floating Exchange Rates
Floating exchange rates allow the value of a currency to be determined by market forces. This can provide stability, but it can also lead to volatility.
17.4 Example: China’s Exchange Rate Policy
China’s exchange rate policy has been a subject of much debate, with some arguing that it has been used to maintain a competitive advantage in international trade.
18. How Does Foreign Direct Investment (FDI) Affect Comparative Advantage?
Foreign direct investment (FDI) can enhance a country’s comparative advantage by bringing in new technology, capital, and management expertise.
18.1 Technology Transfer
FDI can facilitate the transfer of technology from developed countries to developing countries, enhancing their productivity and competitiveness.
18.2 Capital Inflows
FDI brings in capital, which can be used to invest in infrastructure, education, and other key areas.
18.3 Management Expertise
FDI can introduce new management expertise, improving efficiency and productivity.
18.4 Example: FDI in Southeast Asia
Southeast Asian countries have benefited significantly from FDI, which has helped them to develop their manufacturing industries and integrate into global supply chains.
19. What Are the Challenges of Maintaining Comparative Advantage in a Rapidly Changing World?
Maintaining comparative advantage in a rapidly changing world requires continuous innovation, adaptation, and investment in key areas.
19.1 Technological Disruption
Technological disruption can quickly erode a country’s competitive advantage if it fails to adapt and adopt new technologies.
19.2 Global Competition
Global competition is intensifying, making it more difficult for countries to maintain their market share.
19.3 Changing Consumer Preferences
Changing consumer preferences can shift demand away from traditional products and towards new or innovative offerings.
19.4 Policy Adaptations
Governments must continuously adapt their policies to promote innovation, reduce regulatory burdens, and foster competition.
20. How Can a Country Prepare for Future Economic Shocks?
Preparing for future economic shocks requires building a resilient economy that is diversified, innovative, and adaptable.
20.1 Economic Diversification
Diversifying the economy beyond a few key sectors can reduce vulnerability to economic shocks.
20.2 Innovation
Investing in innovation can help countries develop new industries and create new jobs, reducing their reliance on traditional sectors.
20.3 Adaptability
Building an adaptable workforce and regulatory environment can help countries respond quickly to changing economic conditions.
20.4 Fiscal Prudence
Maintaining fiscal prudence can provide governments with the resources needed to respond to economic shocks.
21. What Role Does Government Regulation Play in Comparative Advantage?
Government regulation can both enhance and hinder comparative advantage. Regulations that protect intellectual property, promote fair competition, and ensure product safety can enhance competitiveness.
21.1 Intellectual Property Protection
Regulations that protect intellectual property can incentivize innovation and creativity, leading to the development of new products and services.
21.2 Fair Competition
Regulations that promote fair competition can prevent monopolies and cartels, fostering innovation and efficiency.
21.3 Product Safety
Regulations that ensure product safety can enhance a country’s reputation for quality, increasing its competitiveness in international markets.
21.4 Regulatory Burden
However, excessive or poorly designed regulations can increase costs and reduce efficiency, hindering competitiveness.
22. How Does Cultural Influence Affect Comparative Advantage?
Cultural factors can affect comparative advantage by shaping consumer preferences, influencing work ethic, and fostering innovation.
22.1 Consumer Preferences
Cultural factors can influence consumer preferences, creating demand for certain types of products and services.
22.2 Work Ethic
Cultural values can influence work ethic, affecting productivity and competitiveness.
22.3 Innovation
Cultural factors can foster innovation by promoting creativity and risk-taking.
22.4 Example: German Engineering
The German emphasis on precision and quality has contributed to its comparative advantage in engineering and manufacturing.
23. Can a Country Create Comparative Advantage?
Yes, a country can create comparative advantage through strategic investments in education, technology, and infrastructure, as well as through policies that promote innovation and competitiveness.
23.1 Strategic Investments
Strategic investments in key areas can enhance productivity and drive innovation, creating new sources of comparative advantage.
23.2 Policy Reforms
Policy reforms that promote innovation, reduce regulatory burdens, and foster competition can create a more favorable business environment.
23.3 Targeted Support
Targeted support for specific industries or sectors can help them to develop a competitive edge.
23.4 Example: Singapore’s Economic Development
Singapore’s economic development is a prime example of a country creating comparative advantage through strategic planning and targeted investments.
24. How Can Comparative Advantage Be Measured?
Comparative advantage can be measured using various indicators, including revealed comparative advantage (RCA) indices, export specialization indices, and trade balance ratios.
24.1 Revealed Comparative Advantage (RCA)
RCA indices measure a country’s export share in a particular product relative to its share of total world exports.
24.2 Export Specialization Indices
Export specialization indices measure the degree to which a country’s exports are concentrated in a few key sectors.
24.3 Trade Balance Ratios
Trade balance ratios measure the difference between a country’s exports and imports in a particular sector.
24.4 Baldwin and Okubo’s Method
Baldwin and Okubo’s (2019) method provides a more sophisticated approach to measuring comparative advantage, taking into account global value chains and the complexity of modern trade.
25. What Are the Future Trends Affecting Comparative Advantage?
Future trends affecting comparative advantage include the rise of automation, the growth of the digital economy, and increasing concerns about sustainability.
25.1 Automation
The rise of automation is reducing the importance of low-cost labor, shifting the focus to skills and technology.
25.2 Digital Economy
The growth of the digital economy is creating new opportunities for countries to develop a comparative advantage in areas such as e-commerce, software development, and data analytics.
25.3 Sustainability
Increasing concerns about sustainability are creating demand for green technologies and sustainable products, providing opportunities for countries to develop a comparative advantage in these areas.
25.4 Patel and Wei’s Observations
As Patel and Wei (2019) highlighted, complementary relationships between parts and components makers and downstream producers will also shape future trends.
26. How Can a Country Balance Economic Growth and Environmental Sustainability?
Balancing economic growth and environmental sustainability requires implementing policies that promote green technologies, conserve resources, and reduce pollution.
26.1 Green Technologies
Promoting green technologies can help countries to reduce their environmental impact while also creating new economic opportunities.
26.2 Resource Conservation
Conserving resources can ensure that they are available for future generations, supporting long-term economic growth.
26.3 Pollution Reduction
Reducing pollution can improve public health and protect the environment, enhancing quality of life.
26.4 Policy Integration
Integrating environmental considerations into economic policymaking can help to ensure that economic growth is sustainable.
27. What Is the Role of International Cooperation in Maintaining Global Comparative Advantage?
International cooperation is essential for maintaining global comparative advantage by promoting fair trade, fostering innovation, and addressing global challenges such as climate change.
27.1 Fair Trade
Promoting fair trade can ensure that all countries have an opportunity to benefit from globalization.
27.2 Innovation
Fostering innovation can help to develop new technologies that can address global challenges and support sustainable growth.
27.3 Global Challenges
Addressing global challenges such as climate change requires international cooperation to develop and implement effective solutions.
27.4 Collaborative Agreements
Collaborative agreements can facilitate the sharing of knowledge and resources, enhancing global competitiveness.
28. How Does the Aging Population Affect Comparative Advantage?
An aging population can reduce a country’s labor force, increase healthcare costs, and reduce innovation, potentially eroding its comparative advantage.
28.1 Reduced Labor Force
An aging population reduces the size of the labor force, which can lead to labor shortages and reduced economic growth.
28.2 Increased Healthcare Costs
An aging population increases healthcare costs, which can put a strain on government budgets and reduce investment in other areas.
28.3 Reduced Innovation
An aging population can reduce innovation, as older workers may be less likely to adopt new technologies and develop new ideas.
28.4 Policy Responses
Policy responses to an aging population include raising the retirement age, encouraging immigration, and investing in automation.
29. What Strategies Can a Country Use to Attract Skilled Workers and Retain Talent?
Attracting skilled workers and retaining talent requires creating a favorable business environment, offering competitive wages and benefits, and providing opportunities for professional development.
29.1 Favorable Business Environment
Creating a favorable business environment includes reducing regulatory burdens, promoting innovation, and investing in infrastructure.
29.2 Competitive Wages and Benefits
Offering competitive wages and benefits can attract skilled workers and retain talent.
29.3 Professional Development
Providing opportunities for professional development, such as training programs and mentorship opportunities, can help to retain talent and enhance productivity.
29.4 Quality of Life
Enhancing quality of life can also attract and retain skilled workers.
30. How Can a Country Effectively Manage Its Public Debt to Maintain Competitiveness?
Managing public debt effectively is crucial for maintaining competitiveness. High levels of public debt can lead to higher interest rates, reduced investment, and economic instability.
30.1 Fiscal Discipline
Maintaining fiscal discipline involves controlling government spending and increasing revenue.
30.2 Debt Management Strategies
Implementing effective debt management strategies can reduce the cost of borrowing and minimize the risk of default.
30.3 Structural Reforms
Implementing structural reforms can improve economic efficiency and increase growth, making it easier to manage public debt.
30.4 Transparency
Ensuring transparency in fiscal policymaking can build confidence and reduce the risk of economic instability.
These comprehensive strategies and insights offer a thorough understanding of how a country can address and reverse the loss of comparative advantage, ensuring long-term economic stability and growth. Remember, for detailed comparisons and more insights, visit COMPARE.EDU.VN at 333 Comparison Plaza, Choice City, CA 90210, United States. Contact us via WhatsApp at +1 (626) 555-9090.
Navigating the complexities of comparative advantage requires a reliable source of information. At COMPARE.EDU.VN, we understand the challenges in comparing different options and making informed decisions. Our platform is designed to provide detailed, objective comparisons across various products, services, and ideas. We meticulously list the pros and cons of each option, comparing features, specifications, prices, and other crucial factors. We also offer user reviews and expert insights to give you a well-rounded perspective.
Difficulties in Comparing Options?
We recognize the difficulties in making objective and comprehensive comparisons, especially with an overwhelming amount of information. Our goal is to simplify this process, providing you with the tools and information needed to make confident decisions.
Why Choose COMPARE.EDU.VN?
- Detailed and Objective Comparisons: Get comprehensive analysis of products, services, and ideas.
- Clear Pros and Cons: Easily identify the advantages and disadvantages of each option.
- Feature and Specification Comparisons: Compare essential features, specifications, and prices.
- User and Expert Reviews: Gain insights from those who have experience with the options you’re considering.
Ready to Make Informed Decisions?
Visit compare.edu.vn today to find the detailed comparisons you need. Make confident decisions with our comprehensive and objective information. Our location is 333 Comparison Plaza, Choice City, CA 90210, United States, and you can reach us via WhatsApp at +1 (626) 555-9090.
FAQ: Understanding Comparative Advantage
1. What is comparative advantage?
Comparative advantage refers to a country’s ability to produce a good or service at a lower opportunity cost than other countries, enabling it to trade more profitably.
2. How does currency appreciation affect a country’s comparative advantage?
Currency appreciation increases the price of a country’s exports, making them less competitive in international markets.
3. What role do labor costs play in comparative advantage?
Lower labor costs can provide a significant competitive advantage, especially in labor-intensive industries, by reducing production costs.
4. How do technological advancements impact a country’s comparative advantage?
Technological advancements drive innovation and efficiency, increasing productivity and creating new products that enhance a country’s competitive edge.
5. What are shifts in global demand, and how do they affect trade?
Shifts in global demand refer to changes in consumer and business preferences worldwide, affecting which countries can meet these new demands most efficiently.
6. How can a country regain its comparative advantage?
A country can regain its comparative advantage through strategic investments in technology, education, and infrastructure, as well as policy reforms promoting innovation.
7. What policies can promote innovation and competitiveness?
Policies that promote innovation and competitiveness include tax incentives for R&D, intellectual property protection, and deregulation to reduce barriers to entry.
8. How does globalization impact comparative advantage?
Globalization intensifies competition, making it easier for companies to shift production to countries with lower costs, and requires continuous innovation.
9. What are the risks of relying solely on natural resources?
Relying solely on natural resources can make a country vulnerable to commodity price fluctuations and hinder the development of other sectors.
10. How does education affect comparative advantage?
A well-educated workforce is more productive and adaptable, enabling a country to compete in high-value-added industries.
