Comparative Advantage; does it work ?
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Useful Links The following links provide useful resoures for this activity. CIA -- The World Factbook 1999 This is perhaps the best available resource for this activity. It provides summary information on country resources, population, industrail structure and exports and imports etc. Infonation: Choose Countries Un CyberSchool Bus provides basic economic statistics , geographical and social indicators for all the countries in the world Economic information - Australian Department from Foreign Affairs. This site offers facts sheets on Australia's Trade with rest of the world. The ABS A wide range of current trade statistics are avilable from the ABS. Go to to the What's new section and the Australian Yearbooks are available online free of charge. The ABS all contains a large section which offers free statistics to the public. The World Bank Group--Development Data: Count... World Bank Country at a glance tables are useful to give technological and manufacturing exports etc as a percentage of the total WTO | Welcome to the WTO website In the process of being updated but will have an excellent supply of trade stats soon. Country Studies: Area Handbook Series (Librar... These are provided by the US Library of Congress and provide Historical information as well as Economic data on the world's countries. Alta Plana: International Economics Gateway: ... Provides links to Government and Statistical organsiations in all the world's countries. An excellent resource even though it desperately needs updating.	Introduction According to the theory of comparative advantage a country will gain if it concentrates in the production of those goods and services which it can produce with lower opportunity costs than it’s competitors. If a country does this all countries will benefit from free trade. Countries which have abundant supplies of particular resources will tend to have lower opportunity costs in the production of those goods and services which make use of those resources. So for example Australia has an abundant supply of land and hence we would expect it to have a comparative advantage in the production of agricultural products. These products make use of land in order to be produced. According to this theory a countries factor endowment determines it’s comparative advantages; what it will export and what it will import. A countries factor endowment refers to the different combinations and types of resources which it has. For example; how many people does it have ? Are they skilled or unskilled ? What type of natural resources does it have ? How much of them does it have ? Are they abundant or scarce ? Is it’s land good for wheat , rice or beef ? The same applies to a countries endowment of capital and enterprise. If the theory of comparative advantage is correct countries which have abundant supplies of some resources will tend to have a comparative advantage in the production of those goods which make heavy use of them and hence export them. Factors of production which are scarce in a country will tend to be used heavily in the production of those goods and services which these countries import. The key question is does this theory actually explain what goods and services Australia and it’s trading partners import and export ?
	Hypothesis Australia’s trade is explained by the theory of comparative advantage. We have an international advantage in the production of those goods and services which make use of our endowment of abundant factors of production and hence we export these. We import those goods and services which make use of factors of production that are in scarce supply in Australia. Your Task (1) Define Australia’s factor endowment and predict what goods and services you would expect us on this basis to export and to import. (2) Collect Data using the table included with is document. Compare the resource endowments and trade profiles of Australia and three of it’s trading partners. (3) Interpreting the data. Sort your data into a two column table. Examples which fit the theory and examples which do not. ( Do this as a class) (4) Reaching conclusions; Examine the table : is the theory of comparative advantage true or false in your opinion ? Are there any unusual patterns in the data ? How does Australia ‘s trade profile compare to other countries especially advanced economies ? If the theory of comparative advantage is incorrect what other explanation would you offer for the patterns in the data ? (5) Summarise your opinion and present it to the class. You may wish to participant in a debate on this topic.