An economic principle that explains how countries, businesses, or individuals can benefit from specializing in producing goods and services they can produce most efficiently
David Ricardo formulated the theory of comparative advantage in his book "On the Principles of Political Economy and Taxation"
1817
Comparative Advantage
Built on the ideas of Adam Smith, who advocated for the benefits of specialization and free trade
Opportunity Cost
The cost of forgoing the next best alternative when making a decision
Absolute Advantage
Being able to create more or better goods and services than someone else
Comparative Advantage
The ability to create goods and services at a lower opportunity cost—rather than necessarily at a higher volume or quality
According to the Law of Comparative Advantage, a person or a nation should specialize in the good they have comparative advantage in
Specialization
Leads to more efficiency
Leads to higher production
Expands the economy
Reduces production costs
Globalization
The growing economic integration of the world through migration, trade, investment, and technology
Positive Impacts of Globalization on Developing Economies
Increased access to larger markets
Inflow of foreign investment
Technology transfer and skill development
Negative Impacts of Globalization on Developing Economies
Economic dependency
Vulnerability to market fluctuations
Potential for exploitation and inequality
Insights from Stiglitz's "Globalization and Its Discontents"
Globalization can cause economic discontent in developing nations
International institutions' policies can fail to consider local contexts
Need for reform to ensure globalization's benefits are shared more fairly
Policies to maximize the benefits and minimize the drawbacks of globalization should be adopted by developing nations, including investments in infrastructure, education, and responsible governance
International organizations like the World Bank, IMF, and WTO must implement more inclusive and adaptable policies that consider the specific needs of each nation
Interdependence
Shared needs of countries for knowledge, resources, and other essentials supplied by other countries
Public Choice Theory
Applies economic principles and methods to the study of political behavior, analyzing how public decisions and policies are made
The seminal work "The Calculus of Consent" by James M. Buchanan and Gordon Tullock was published, contributing to the development of Public Choice Theory