country’s natural endowments of land, labour, and natural resources are
the prime determinants of its comparative advantage. The traditional
view suggested that a government interested in maximizing its citizens’
material standard of living should encourage specialization of production
in goods for which it currently had a comparative advantage. If all
countries followed this advice, each would have been specialized in a
relatively narrow range of distinct products. Germans would have
produced engineering products, Canadians would have produced
resource-based primary products, Americans would have been farmers
and factory workers, Central Americans would have been banana and
coffee growers, the Chinese would have produced rice and cheap toys,
and so on.
There are surely elements of truth in both views. It would be unwise to
neglect the importance of resource endowments, climate, culture, social
patterns, and institutional arrangements. But it would also be unwise to
assume that all advantages are innate and immutable.