• 6 Pages
  • 1544 Words

Create a new account

It's simple, and free.

International Trade Theory

Former Assistant Treasury Secretary Paul Roberts writes in Business Week (2004) that the premise of free trade is that the international division of labor follows the principle of comparative advantage. The United States is likely to have an absolute advantage in all stages of the production process, because American workers are, on average, more skilled and educated than those in developing countries, and infrastructure in the United States is superior. But the United States' advantage in terms of efficiency is likely to be greatest in high-technology production processes, for which a highly skilled work force is critical. The United States gains from the increase in efficiency resulting from the global division of labor. Roberts cautions that for comparative advantage to work, a country's labor, capital, and technology must not move offshore. This international immobility is necessary to prevent a business from seeking an absolute advantage by going abroad. Roberts notes that the internal cost ratios that determine comparative advantage reflect the quantity and quality of the country's technology and capital. If these factors move abroad to where cheap labor makes them more productive, absolute advantage takes over from comparative advantage, which explains the recent movement of jobs in the form of outsourcing work dev


Page 1 of 6 Next >

More on International Trade Theory...

APA     MLA     Chicago
International Trade Theory. (1969, December 31). In Retrieved 12:07, October 24, 2014, from
Copyright © 1999 - 2014 All Rights Reserved. DMCA