Summary
A comparative advantage concept is needed to understand the knowledge of global trade trends. Countries work to develop and preserve their competitive advantage to engage in global trade. Nonetheless, there are several and, at times, obscure aspects that lead to comparative advantage. Hence, countries are persistently trying to achieve and maintain it. The essay will examine the challenges that can be experienced by a developing versus a developed country based on comparative advantage.
Developing Countries
Data and Information
Lack of information and data is among the biggest issues that developing countries might experience. It makes it difficult to highlight the factors that lead to comparative advantage. Lack of knowledge makes it difficult to make informed decisions concerning which goods to produce and trade (Lectard & Rougier, 2018). Inadequate information and data could make it difficult to track and evaluate an economy’s performance.
The Problems of Resources and Political Instability
Another issue that is affecting developing nations is the lack of resources. It can be because of a lack of financing, skilled labor, or the use of modern technologies. Manufacturing products and offering services that are competitive on the global market can be an uphill task for developing nations (Lectard & Rougier, 2018). Further, a lack of resources could make it difficult for these countries to involve in global trade (Ahsan, 2020). Most developing nations experience political instabilities, for example, Somalia, South Sudan, Ethiopia, and the Republic of Congo. This makes it difficult for them to attract foreign investments and engage in international trade. Hence, they miss foreign direct investments (FDIs) that may support them attain a comparative advantage.
Lack of Infrastructure and Access to the Market
Developing countries experience inadequate infrastructure to support development and growth. They do not have well-developed road networks, ports, airports, or telecommunication frameworks. Transportation of goods and services to and from the nation can become an uphill task as the country lacks these valuable infrastructures (Salmensuu, 2021). Developing countries experience inadequate access to the market for their goods and services. This has made most of them find it challenging to offer their goods and services on a global scale.
Lack of Skilled Human Capital
The issue of unskilled and semi-skilled labor is prevalent in developing nations due to inadequate investment in human resources training facilities. Manufacturing products and offering quality services that are competitive in the international market can be a challenge as a result (Lectard & Rougier, 2018). Inadequate human resources may make it difficult to entice investment from overseas. Moreover, additional investments in educational and training programs are required.
Developed Nations
However, developed countries often have a wealth of knowledge and data; hence, finding the aspects that lead to comparative advantage can be simple. They often have well-developed infrastructure, which assists in supporting the transportation of services and goods out and into the country. Further, industrialized nations often have market access, which may support the sale of products and services on the global market. Developed nations have always had skilled human resources, which may support the manufacturing of products and services.
Flexibility
Lack of flexibility has become one of the main problems which a developed nation might experience. It can be challenging to respond to the changes in the international market. In addition, a lack of flexibility should create it challenging to maintain a comparative advantage. Moreover, a developed nation might struggle with a lack of competitiveness since it is difficult to facilitate innovation and sustain low prices. Further, a lack of rivalry could create it challenging to preserve the comparative advantage.
In conclusion, developing nations have a range of challenges; for instance, the need in resources, knowledge, infrastructure, and political instability is relatively high. Moreover, such aspects as market access and human capital are required. Nonetheless, the challenges the developed country can experience based on comparative advantage are often fewer comprising lack of competitiveness, flexibility, high taxation, and high cost of living.
References
Ahsan, D. A. H. (2020). The external debt problem of developing countries. Business Inform, 10(513), 36–49.
Lectard, P., & Rougier, E. (2018). Can developing countries gain from defying comparative advantage? Distance to comparative advantage, export diversification and sophistication, and the dynamics of specialization. World Development, 102, 90-110.
Salmensuu, O. (2021). Macroeconomic trends and factors of production affecting potato producer prices in developing countries. The Journal of Developing Areas, 55(1).