Applying Economic Concepts 32-2
Comparative Advantage and Global Supply Chains
The discussion of comparative advantage developed in this
chapter applies easily to many products with one or even a few
components. One can sensibly speak of national comparative
advantages for whole products, such as Costa Rica for
bananas, Canada for sawn logs, Chile for copper, Korea for
steel, and Saudi Arabia for oil.
For many manufactured products, however, and even for some
resource-based products and service industries, production is
carried out in complex and integrated “global supply chains,”
with a product’s several different components being produced
in different countries and often by different firms. In such a
world, it is no longer clear where some products are “made,”
even though one could easily determine where each of the
product’s many components is produced and where they are
all assembled into a final product.
This method of decentralized production has several causes.
First, the existence of scale economies provides an incentive
for individual firms to reduce their costs by concentrating the
production of each individual component in a different
specialized large factory. Second, differences in national wage
rates for various types of labour provide an incentive for these