A) International division of labor

Sovereign nations, like individuals and regions of a nation, can gain by specializing in those

products which they can produce with greatest relative efficiency and by trading for those goods

they cannot produce efficiently. Specialization leads to international division of labor. As a result,

some countries attain great science economic progress just in manufacture of specialized production

— electronics, means of communication, cosmic and aircraft technology, automobiles, complex

kinds of armament, pharmaceutics, etc.

While the above rationale for world trade is quite correct, it in a sense begs the question. “Why

do nations trade?” hinges upon two points. First, the distribution of economic resources — natural,

human, and capital goods — among the nations of the world is quite uneven; nations are substantially

different in their endowments of economic resources. Second, the efficient production

of various goods requires different technologies or combinations of resources.

The character and interaction of these two points can be readily illustrated. Japan, for example,

has a large and well-educated labor force; skilled labor is abundant and therefore cheap. Hence,

Japan, deprived of resources, can produce efficiently (at low cost) a variety of goods whose production

requires much skilled labor; cameras, transistor radios, and video recorders are some examples

of such labor-intensive commodities.

In contrast, Australia has vast amounts of land in comparison with its human and capital resources

and hence can cheaply produce such land-intensive commodities as wheat, wool, and meat.

Brazil possesses the soil, tropical climate, rainfall, and ample supplies of unskilled labor requisite

to the efficient low-cost production of coffee.

Industrially advanced nations are in a strategic position to produce cheaply a variety of capitalintensive

goods, for example, automobiles, agricultural equipment, machinery, and chemicals.

It is important to emphasize that the economic efficiency with which nations can produce various

goods can and does change over time. Both the distribution of resources and technology can

change so as to alter the relative efficiency with which goods can be produced by various countries.

In short, as national economies evolve, the size and quality of their labor forces may change, the

volume and composition of their capital stocks may shift, new technologies will develop, and even

the quantity and quality of land and natural resources may be altered. As these changes occur, the

relative efficiency with which a nation can produce various goods will also change.

Stated most generally, international trade is a means by which nations can specialize, increase

the productivity of their resources, and thereby realize a larger total output than otherwise.