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1000 words - 4 pages

First it is crucial to understand the concept of comparative advantage which is "The person or country that produces a good with a smaller quantity of inputs, or that produces more output per unit of input, is said to have an absolute advantage in producing that good”. To illustrate the concept of comparative advantage requires at least two goods and at least two places where each good could be produced with scarce resources in each place. The example drawn here is from Ehrenberg and Smith (1997), page 136. Suppose the two goods are food and clothing, and that "the price of food within the United States is 0.50 units of clothing and the price of clothing is 2 units of food. [Suppose also ...view middle of the document...

And nations with less regulation of pollution may have a comparative advantage in “dirty” industries that produce high levels of pollution. (Deardorff)
Third, over time, a major source of comparative advantage comes from investments in technology. One reason the United States has a comparative advantage in space exploration and in manufacturing large commercial airplanes is because U.S. firms in these industries have invested in state of the art production technologies. In some cases firms developed these technologies due to government incentives or contracts, such as those associated with U.S. space exploration and national defense programs. (Deardorff)

We can safely say that the analysis of trade in goods and services while no factors of production-labor, capital, or land move between countries. In the real world, there are movements of capital called international capital flows- and movement of labor termer migration-between countries. We can also go into the effects of allowing for movement of these factors, we will add an important variant of capital movement that of foreign direct investment abroad (FDI). Characteristic of modern industrial society in the world is not only free trade in goods and services, but also the free movement of capital. In various regions around the world, and of course the currency, together with a list of interest. The world’s financial markets and capital markets have an important impact on the financial and economic crisis in general, the international investment position, capital of an important role in the development of the financial markets of individual countries and regions around the world. The above condition can help out the “inflow” of capital investment in highly profitable countries.

World finance and investment markets go up must say that the maximum inter-replacement therapy is necessary for the development of production factors in the global financial system, which in turn determines the global mobility of capital investment. Financial investments in physical capital in comparison, because of his mobility occupied a leading position in the global financial system...

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