Unit 2: Why Trade?
Part 6:
Dynamic Comparative Advantage
A further implication
of Samuelson’s theory of factor-price equalization
is that comparative advantage is a dynamic process.
Product Life cycles. In particular, trade
specialization is driven by product life cycles. Even if
it is good for the US, a technological leader, to specialize
in computer production today, it might not be good ten years
from now, because ten years from now, the relative value
of the technology needed to make computers may have fallen.
As scientific discovery progresses over the next ten years,
the cutting edge skills required to make computers today
may spread to developing nations and become commonplace
by tomorrow. The workers using such technology in the US
will consequently become relatively less scarce and their
wages will fall (quite consistently with the factor-price
equalization story of the previous section).
Letting go to get on. So while it might
be good for the US to make computers now, in the long run,
when computers are no longer cutting-edge technology, the
US might benefit from moving on to other cutting-edge industries
like genetic engineering and biotechnology. All of this
implies that for a nation like the US to maintain its relatively
high living standards, we must continually develop and export
the newest, latest, and greatest cutting-edge products.
But to obtain the resources necessary for this, we must
also be willing to let go of products whose technological
value is in decline (to the point of becoming an importer
of that product).
