INTERNATIONAL TRADE THEORY
INTERNATIONAL TRADE THEORY
Abstract
Comparative advantage, the ability of a nation or individual firms to produce goods or services at lower costs than their competitors is critical in international trade. Fundamentally, the availability of natural resources, abundant of labor, and technology allows some regions to produce goods or services at lower costs. These propositions have been the central building blocks of the international trade theory with little regards to the role of the entrepreneurs. Investors determine the value of the natural resources or even attempting to utilize them. Besides, their decisions influence the market forces in the region supply of labor, training, and specialization as well as the type of technology to adopt. Therefore, they remain central to determining the comparative advantage.
An analysis of Dorobat and Topan (2015) article
Summary and comparative advantage
For several decades, the concept of entrepreneurship has been missing in the mainstream economic theory. Therefore, there has been a continuous desire to integrate entrepreneurship concepts in economic theories concerning how they influence economic growth. It has also permeated international trade gradually. Dorobat and Topan (2015) delved into the issues of mainstreaming entrepreneurship in the international trade theory by first analyzing its exclusion, how it affects resource distribution and the irreducible connection between trade specialization and entrepreneurial activities.
The naturalism school viewed entrepreneurs as critical in the market processes especially in the allocation of resources under uncertainty. It is risks that drive most of the economic activities, and entrepreneurs play the central most role. The enterprising person determines the forces of production. What to produce, the quantities, and location in the world is not dependent on the technology but the decisions of the entrepreneurs in a move to fulfill consumer demands. It follows that the investors forecast what the market would be and uses available resources. Capital goods are relatively nonspecific, complementary, and time sensitive all of which reflect the investors desires to meet the market demands. It follows that it is impossible to remove the entrepreneur from the economy.
Importance of the Article
The article is important because it emphasizes aspects of the economic theories that classical theories over-looked. Technology is relatively a new phenomenon in trade and cannot supersede the decision of the entrepreneur. The fact that the resources are not by themselves useful makes investors the primary driving forces in the economy because their allocation of value would among other things affect the cost of rent for capital goods, and by extension supply and demand. Moreover, the availability of labor through training of worker is not a natural process. It begins by entrepreneurs making the decision to invest in particular careers that would create professionals that would eventually lead to specialization. The forces of the market globally are not independent of the individuals’ choices, and therefore, to understanding comparative advantages, one needs to analyze the decisions of the individual investors. The proposition in the article would offer insight into a new understanding of comparative advantage and open gates for further research.
However, the article fails to factor in the decision of the governments and international policies. The business environment globally operates under laws that can promote or hinder the choices of the entrepreneurs. In this regard, the options are not as freely availed as the authors suggest. For instance, countries tend to limit adoption of disruptive technologies especially those that may course rampant unemployment. In this respect, entrepreneurs do not have a choice other than sticking to what the government allows. Besides, the government can apply quotas affecting the flow of goods between nations with the aim of boosting local production. The government can also offer incentives that favor some means of production over the others. At the same time, the labor allocation is subject to government regulations such as minimum wage regulations that may affect the comparatives advantage. Besides, international laws tend to promote the adopting of green energy and in the process end up affecting the choices people make.
Notwithstanding the weaknesses, the article is objective regarding the nature of global trade. First, it envisages a free market on a global scale whereby players entirely abide by the forces of supply and demand. In this respect, entrepreneurs act in a rational way to fulfill self-interests in an attempt to satisfy the needs of consumers.
Valuable lesson
The investors choose rationally the most efficient means of production to gain comparative advantage
Comparative advantage may not be a regional aspect but occurs due to the differences in the choices of the entrepreneurs individually.
References
Dorobat C. E., & Topan, M. (2015). Entrepreneurship and Comparative Advantage. The Journal of Entrepreneurship. Vol. 24, No. 1, pp. 1-16. DOI: 10.1177/0971355714560036
