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Organization: University of Massachusetts, Amherst

In article <1992Aug14.202016.3830@oracle.us.oracle.com> mfriedma@uucp (Michael Friedman) writes:
>In article <1992Aug12.153525.14298@ils.nwu.edu> hooker@aristotle.ils.nwu.edu (Bob Hooker) writes:
>>But lets say that I am a country that produces rubber very well.  Jobs in
>>the rubber production pay like shit,  they are dangerous,  they pollute the
>>country side and they do not require that my country educate people.
>
>>I can buy tractors for rubber from a more industrialized country.  And if
>>there is a competetive advatage I am better off in the short run buying the
>>tractors and keeping my country a rubber producer.  
>
>>The result is I have a poor, polluted, uneducated country.  If I want to
>>start industry,  but my trading partners all have a comparative advanatge
>>in industry,  I had better put up some trade restrictions of some kind, in
>>order to protect by domestic market.
>
>The point you miss is that although a few people will be better off -
>for example the owner of the factory and the people who work in it -
>many more will be worse off - tractor buyers, people who need things
>that are produced using tractors, people who sell materials that are
>used with tractors, etc.

False.  The success of the tractor business may have a positive
effect on the entire economy: for example, while repairs on foreign
made tractors might be most easily done in in the foreign country,
repairs on local made tractors might be the basis of thriving
local machine-shop industry, and these machine shops might provide the
foundation for the growth of, say, a bicycle industry ... etc. 
Thus, trade barriers and public investment may may make it cheaper
to make high-value added goods locally and help the domestic economy
move from a low-wage colonial status to a higher wage independent
status. Of course, this is not a hypothetical example, the history
of the last 4 decades makes it very clear that encouraging domestic
manufacturing is a far more sensible status than encouraging 
export of raw materials and agricultural goods. Nations like Jamaica
which were lead by IMF economists to exploit the comparative advantage
theory find themselves hostage to an international commodities market
while nations which have subsidized domestic manufacturing, e.g. Korea,
find themselves creating skilled jobs.

>What comparative advantage tells you is that the net result of all
>this will be a loss of wealth from your country.  

As Korea, Taiwan, Egypt, and Chile, stand out as counter-examples, 
one might want to question the validity of the theory.

>Now where does it go wrong?

In practice.

-- 


yodaiken@chelm.cs.umass.edu
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