International Specialization (Copy)

6.1.1 Specialisation at a National Level

• Definition:
  • National specialisation = when a country concentrates on producing goods and services it can produce more efficiently than others.
  • Based on comparative advantage: ability to produce a good at a lower opportunity cost than another country.
• Basis for specialisation at national level:
  1. Superior resource allocation
     • Some countries have natural advantages (e.g., oil in Saudi Arabia, coffee in Brazil).
     • Efficient allocation of scarce resources → higher global output.
  2. Cheaper production methods
     • Advanced technology in developed countries lowers production costs.
     • Lower labour costs in developing countries make them efficient in labour-intensive industries.
• Example:
  • Bangladesh → textiles (low labour cost).
  • Japan → electronics (advanced technology).
  • Saudi Arabia → oil (natural resources).

Diagram: Comparative Advantage (PPF Example)

Country A (Oil-rich): 
More oil, less textiles.

Country B (Labour-rich):
More textiles, less oil.

Through trade → both consume more of both goods.

6.1.2 Advantages of National Specialisation

For Consumers:

• Wider choice of goods and services.
• Lower prices due to efficiency.
• Higher quality due to expertise.

For Firms:

• Access to larger markets (exports).
• Economies of scale (lower average costs).
• Increased competitiveness.

For the Economy:

• Higher GDP from efficient resource use.
• Job creation in export industries.
• Inflow of foreign exchange from exports.
• Encourages innovation and productivity growth.

Diagram: Gains from Trade

Without trade: each country consumes within its PPF.
With trade: both countries consume beyond their PPF.

Disadvantages of National Specialisation

For Consumers:

• Overdependence on imported goods (risk if supply disrupted).
• Vulnerability to global price changes (e.g., oil, wheat).

For Firms:

• Over-reliance on single industries → vulnerable to shocks.
• Loss of infant industries due to foreign competition.

For the Economy:

• Structural unemployment if global demand shifts.
• Risk of “Dutch disease” → overdependence on one sector (e.g., oil).
• Exposure to global recessions → exports decline, economy suffers.

Example:

• Oil-dependent Venezuela → vulnerable to global oil price fluctuations.
• Textile-dependent Bangladesh → risks if global demand falls.

Diagram: Risks of Over-Specialisation

National Output Composition

Specialised Economy:
█████████ (1 sector)
█         (others)

Diversified Economy:
███   ███   ███   ███

→ Specialised = more vulnerable

Summary of International Specialisation

• Advantages:
  • Efficient resource allocation.
  • Lower prices and greater choice.
  • Higher productivity, GDP growth.
• Disadvantages:
  • Dependency on imports.
  • Risk of unemployment.
  • Vulnerability to global shocks.