Gains From Specialization In Trade

Specialization in Trade

Of the numerous articles that I reviewed, the one thing that they all implied was that the gains from trade are as a result of the specialization in production of goods. Some of the articles I found praised the theory of comparative advantage. If a country is more efficient in the production of one good than any other good, then it should focus on the production of that one good and import the other commodities that it wants. Also productivity levels in relation to how much is invested in an industry as well as how much technology you have. Some argue that in order for the theory of competitive advantage to work, labor capital and technology must not move beyond the borders of that country. The absolute advantage of cheap labor in other countries promotes outsourcing of labor in American industry respectively taking over from competitive advantage. Some countries have an overall absolute advantage in trade when compared to other countries.

The most interesting article I found was an editorial from the "Canadian national post". This editorial rendered the greatest significance for specialization and what it meant for the productivity of Canadian industry and income levels of the country's citizens. The perspective was analyzed through a real world test; a domestic market deemed to small for efficient specialization was set free as a result of the Canada-U.S. auto pact of 1965, set up free trade for North American car companies. The article is a prime example of a specialization success story made possible through the doors of free trade, resulting in higher productivity higher wages and a boom in Canadian Industries pursuit of specialization. "Trade means specialization, specialization means higher productivity and higher productivity means higher wages and incomes." When you think about it this makes perfect sense. The best way for me to understand the process was to look at it in small terms by applying specialization to Henry Ford and his creation of the assembly line in automobile manufacturing.

Henry Ford demonstrated a clear understanding of specialization by creating the assembly line. He realized that ten men each specializing in doing one part of the job on an assembly line was much more productive than each person doing all parts of the job by himself. The output per person was 100 times higher than a one man operation. When output was higher productivity was higher, and because productivity was higher Ford began paying his workers 5 dollars a day, nearly doubling other manufacturers and shortening work days from 9 hours to 8 hours.

On a much larger scale when the Canada-U.S auto pact was signed in 1965, Canadian car companies were no longer focusing on their "miniature replica" operations and "instead integrated their Canadian operations into a North American strategy in which Canada would only be responsible for a few product lines, or even parts of product lines." Canada was specializing in a job on a grand scale of a North American assembly line of trade. As a result came higher productivity and higher wages for the auto workers. Canadian industries have since been pursuing specialization by firms reducing their average number of plants and focusing on producing one commodity. "Looking at three different measures of specialization across 21 different industry groups - for a total of 63 cases -- StatsCan's researchers find that in only eight cases was there less specialization in 1993 than in 1983." This scenario provides convincing evidence of success within specialization of trade.

In an article printed in "The New York Times" "Ideas & Trends; Cars and VCR's Aren't Necessarily the First Domino" the article reads "Productivity is a handy measure of an industry's competitive muscle. Industries with high levels of labor productivity tend to export a lot." The editorial goes on to compare the converging productivity levels of Germany, Japan and the United States, for 25 years after World War II. Germany, Japan and the United States all specialize in things that they are good at, my take on the article is that the convergence of the productivity rate is do to a separate factor. The "productivity reflects how much investment you've poured into an industry as well as how sophisticated the technology you have." insinuating that specialization and productivity levels in these countries industry has been fluctuating do to an absolute advantage of excess capital funding a specific industry. Some industries for example the air craft industry are funded by government agencies. The United States has been the leader in the aircraft industry for years do to heavy investment by the pentagon in research and development. Investment has been a key component to the greatness that our country has accomplished for years. In 1957 the United States was years behind the Soviet Union in the "space race" however with enough determination