A Toast to Globalization, Part 2: Considerations for Comparative Advantage

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As a follow-up from my post the other day, I updated the “Liquors from Around the World” chart to include contributions from US states (I thank Daniel Kuehn for the idea), as well as the different types of liquor each area produces.

Of note on this map is how many states/countries produce multiple kinds of liquor (red) for sale in the Oakton ABC store.  When we discuss comparative advantage in economics, do we not stress specialization?  Are not Canada, the US, Brazil, France, Italy, India, and Mexico harming themselves by not specializing in one kind of liquor?

When David Ricardo formulated the idea of comparative advantage, he used the example of England and Portugal specializing and trading.  But, as Steve Davies discusses here, that is an oversimplification.  Countries do not trade; individuals do.  The implication of that is countries do not specialize; individuals do.  Only individuals can possess comparative advantages.  Countries cannot.  A country may have certain features that lead to individuals to specialize along certain lines (eg, Italy has a warm climate that produces fruit that can be used for cordials), but it is ultimately the individual that specializes.  Thus, a country may export many kinds of goods of varying levels of production (raw materials, intermediate, finished goods) and industries (ag, chemical, education, etc) and may import those very same types goods!

We must be very careful when discussing trade and comparative advantage and stress to readers and listeners that the term “country” is merely a shorthand convention.

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