Comparative advantage is again at the centre of discussion as the concept of globalisation appears to have outrun established economic principles such as the one based on the Ricardian concept. A country is said to have a comparative advantage over others in production of certain commodity where production of the same commodity costs less. This means that the country enjoys a comparative advantage in goods where it spends the least. In the present world where globalisation is having its hay day in determining the world market, comparative advantage for production of certain items has been conveniently sidelined. The same holds true for individuals or companies producing goods and services. In their case, comparative advantage means opportunity cost and in economic terms, the amount of the good or service that is sacrificed in order to produce another good or service is known as opportunity cost.
Globalization has made the concept of comparative advantage more redundant on the one hand and highly relevant on the other. As comparative advantage is defined as one country's ability to produce a good or service more efficiently and inexpensively than another, effects of globalisation may deprive it from capitalising on the advantage. It may be mentioned that some of the factors that influence comparative advantage include the cost of labour, cost of capital, natural resources, geographic location and workforce productivity. Despite having clear edge over others in the above respects, there are apprehensions that monopoly cartels manufacturing consumer items may ignore a specific nation having similar advantages on issues other than economic ones.
Truly, the less developed countries have benefited from globalisation by leveraging their comparative advantage in labour costs. Corporations have shifted manufacturing and other labour-intensive operations to these countries to take advantage of lower labour costs. Countries such as China have seen exponential growth over the last few decades in their manufacturing sectors due mainly to its cheaper labour costs. Countries with the lowest labour costs have a comparative advantage in basic manufacturing.
Globalization has benefited these countries by providing jobs and capital investments that would have otherwise been unavailable. As a result, some developing countries have been able to progress faster in terms of job growth, educational attainment and infrastructure developments. Comparative advantage has influenced the way economies work from the time that countries first started trading with each other many centuries ago.
Additionally globalization has brought the world together by encouraging more trade among nations, more open financial institutions and higher cross-border movement of investment capital across nations. In a globalised economy, countries and businesses are connected in more ways than one. Rapid and efficient transportation networks have enabled the cost-effective shipment of goods across the world. The global integration of financial markets has dramatically reduced barriers to international investment. The quick flow of information over the internet enables companies and businesspeople to share knowledge about products, production processes and pricing in real time. Together, these developments improve economic output and opportunities for both developed and developing nations. These factors also cause greater specialisation based on comparative advantage.
While it is not possible to elaborate how globalisation hinders development of nations with comparative advantage in the space of a single write-up, it is also true that many countries have immensely benefited out of globalisation.