Specialisation and comparative advantage
At the national level, international specialisation occurs when countries concentrate on producing goods and services in which they have a comparative advantage – goods they can produce at lower opportunity cost compared to others. By specialising and trading, countries can consume beyond their individual production possibility curves and enjoy a greater variety of goods.
Advantages and disadvantages of specialisation
| Advantages | Disadvantages | |
|---|---|---|
| Efficiency and output | Allows countries to exploit economies of scale and produce more efficiently, raising world output. | Over‑specialisation makes economies vulnerable to demand fluctuations and technological change. |
| Consumer benefits | Consumers enjoy lower prices and a wider variety of products. | May lead to structural unemployment in industries that decline due to foreign competition. |
| Resource allocation | Resources are allocated according to comparative advantage, maximising global welfare. | Developing countries may become dependent on exporting primary commodities with volatile prices. |
Examples of specialisation
Some economies specialise in natural resource extraction, such as oil in Saudi Arabia or copper in Chile. Others focus on manufacturing or services – e.g. Bangladesh in textile production, India in software services and call centres. A diversified export base reduces vulnerability to shocks.
