computers and failed miserably, wasting much public money in the
process. The government of Ireland tried to create a comparative
advantage in automobile production and failed to create more than a
modest, unprofitable industry that eventually disappeared. The world is
strewn not only with spectacular successes, which show that it can be
done, but also with abject failures, which show that the attempt to do so
is fraught with many dangers.
The Importance of Modern Supply Chains
One other comment needs to be made regarding the relevance of the
concept of comparative advantage. For understanding international trade
in copper wire, lumber, oil, bananas, coffee, textiles, and many other
relatively simple products, the concept of comparative advantage is very
useful. In some manufacturing industries, however, where products have
dozens or perhaps hundreds of components, the determinants of trade
flows are more complex than the theory of comparative advantage
suggests. For example, it is difficult to see why Canada might have a
comparative advantage in the production of automobile transmissions but
not in automobile brake systems or air-conditioning systems. Yet, the
automobile sector is perhaps the best example of an industry in which a
firm’s “supply chain” includes products made by several other firms in
several countries. Applying Economic Concepts 32-2 discusses how
economies of scale and the forces of globalization have led to the
development of complex global supply chains and how these supply
chains affect the way we think about comparative advantage and
international trade.