Specialization may lead to gains from trade through scale economies,
learning by doing, or both. Consider a country that wants to consume
the quantity Suppose it can produce that quantity at an average cost
per unit of Suppose further that the country has a comparative
advantage in producing this product and can export the quantity
it produces This may lead to cost savings in two ways.
First, the increased level of production of compared with permits it
to move along its long-run average cost curve from a to b, thereby
reducing costs per unit to This is an economy of scale.
Second, as workers and management become more experienced, they
may be able to produce at lower costs. This is learning by doing and it
shifts the cost curve from LRAC to At output costs per unit
fall to The movement from a to incorporates both economies of
scale and learning by doing.
The opportunity for learning by doing has an important implication:
Policymakers need not accept current comparative advantages as given.
Through such means as education and tax incentives, they can seek to
develop new comparative advantages. Moreover, countries cannot
complacently assume that their existing comparative advantages will
persist. Misguided education policies, the wrong tax incentives, or
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