AS Unit 4: Comparative Advantage – Labour and Capital

Another interesting graphic from the Begg Textbook. Comparative advantage need not depend on technology differences. It may also reflect different factor supplies. The US has more capital per worker than China. Even though China’s vast size may mean that it has absolutely more capital than the US, the US has relatively more capital than China. Where they is an abundance of supply of a variable factor (labour) it is relatively cheap and the opposite applies if the variable is scarce. Therefore labour intensive industries in China tend to be more competitive that similar industries in the US. The graph below supports this view. It emphasises skills, or human capital, rather than physical capital, although the two are usually correlated. Countries with scarce land but abundant skills have high shares of manufaturing in their exports. Countries with lots of land but few skills typically export base materials. The figure also shows regional averages. Africa lies at one end, the industrial countries at the other end.

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