International trade is the exchange of goods and services across different countries. Various countries across the globe possess different resource endowments. A natural resource available in one country may not be available in another country. These variations in various countries create the need for international trade. This is because a country will focus on the production and exporting of goods and services that it can produce cheaply and sell in exchange for those that it lacks. Comparative advantage is different from an absolute advantage (Maneschi, 2008). A country is said to have an absolute advantage if it is best at producing a given commodity. That is, the commodities it can produce at a lower cost than other countries. This treatise explains the theory of comparative advantage. It also analyses the comparative advantage and disadvantages of Haiti.
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David Ricardo came up with the theory of comparative advantage. A country is considered to have a comparative advantage in the production of a certain commodity if it is capable of producing it at a relatively cheaper cost than other countries. Comparative advantage looks at the opportunity cost and not the actual cost (Maneschi, 2008). The table below shows the cost per unit of producing wheat and wine for two countries.
|Cost per unit in man-hours||Cost per unit in man-hours|
From the table above, the opportunity cost of a unit of wine is two times that of wheat. This is because wine costs twice as much as wheat. In Portugal, the opportunity cost of a unit of wine is 1.5. This is because the cost of wine is 1.5 times that of wheat. Therefore, it is apparent that the opportunity cost of producing wine is cheaper in Portugal than in England. From the table, it is apparent that Portugal has an absolute advantage in producing both goods. This is because it is capable of producing both goods at a lower cost than England. Despite this knowledge, the two countries can still engage in trade because Portugal has a comparative advantage in producing wine, while England has a comparative advantage in producing wheat.
From the above discussion, a country is said to have a comparative advantage if it is capable of producing goods and services at a lower opportunity cost. A comparative advantage relies on several assumptions. These assumptions include “there are no transport costs, there are no economies of scale, there are only two countries producing two goods, and there are no trade barriers” (Maneschi, 2008).
Analysis of comparative advantage (Haiti)
It is one of the poorest countries in the world. Haiti is in the Western Hemisphere of the globe. About 80% of the population lives below the poverty line. In addition, over 50% of the population lives in extreme poverty. The devastating earthquake adversely affected the economy of the country (Workman, 2010).
Comparing trade between Haiti and the US, Haiti has a comparative advantage in producing and exporting apparel and household goods. For instance, in 2008, “Haiti exported $415.3 million worth of apparel and household goods” (Workman, 2010). This amounts to about 77.1% of total exports.
Reasons for comparative advantage
The main economic activity of the country is agriculture. The products produced on a large scale include corn, sorghum, wood, sugarcane, mangoes, coffee, and cotton. Therefore, they have easy access to the raw material for the factors. Besides, some of the farm produce are directly exported from the farm. Other than easy access to raw material, Haiti has a population of about 9 million. Production of apparel and household goods is labor-intensive. Therefore, there is an adequate supply of cheap low skilled labor required for the production of the apparel (Workman, 2010).
From the trade between Haiti and America, it is apparent that Haiti has a comparative disadvantage in production and supply of wheat, rice, meat, poultry, and food in general. The import statistics indicate that the country imported $324.6 million worth of the food items. This is equivalent to about 94% of the total imports. Low food production in the country is caused by a lack of favorable weather and terrain for the production of food, especially rice. Besides, there is a lack of expertise required for the production of food items (Workman, 2010).
The contemporary business environment is quite dynamic. With the rise of emerging markets such as China and constantly changing technology, there is stiff competition in all industries. The concept of comparative advantage applies only to trade between the two countries. One country may decide to pull out and engage with another country where they are likely to gain more from trade. Strategies help a country to improve its competitive advantage and market share. Haiti faces stiff competition from China in the production and export of apparel. In order to maintain and expand the existing comparative advantage, the government of Haiti should endeavor to educate the population so as to make them more productive. Secondly, the government should consider using the latest technologies. The machinery in use should be well equipped with the latest technologies in the market (Tallman, 2009).
Maneschi A. (2008). Comparative Advantage in International Trade: A Historical Perspective. United Kingdom: Edward Elgar Publishing Limited.
Tallman, S. (2009). Global strategy:Global Dimension of Business Series. West Sussex, UK: John Wiley & Sons, Ltd.
Workman D. (2010). Haiti’s Top Import and Export: International trade. Web.