Resource Endowment Theory and Comparative Advantage: A Comparison between KSA and Japan

Running Head: ECONOMICS 1
Global Economy
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ECONOMICS 2
Introduction
In this paper, the country of choice for comparison with Kingdom of Saudi Arabia (KSA)
is Japan. The factor endowment theory states that economies or countries own various types of
natural and artificial resources. However, the comparison between the countries’ possession of
resources varies from one resource to another. Most of the countries have got different portions
of labour and capital. In the economics context, resource endowment theory is used to attain
comparative advantage (Haber &Menaldo, 2011). With this, the theory by Hechsher- Olin states
that a single country is likely to get comparative advantage in the product which uses the
resource that is abundantly endowed. Besides, when determining comparative advantage, it is
very vital to recall that it is the portions of the resources that are considered. It is evident that
when a country is endowed heavily with resources that is to say capital and labor, it ma y have
more than one product than another country. However, when a country has got the advantage in a
product that utilizes the resource with which it is endowed heavily, the country is advised to
focus on the production of the specified good. This is because such a country is endowed with
such a factor, thus producing efficient good that may require factors of production (Kumai,
2018). For instance, the country which has got high portion of capital to labor is likely to be
more efficient in production of computers than it would be for maize production. On the other
hand, if such a country put emphasis in production of maize, it is likely to divert its capital that is
not for maize production into the sector where it is not efficiently used.
Comparison between KSA and Japan
It is evident that both countries of KSA and Japan have got different comparative
advantage of each other in different products. In this case, the Kingdom of Saudi Arabia has got
comparative advantage in exporting oil related products than Japan (Forense, 2018). However,

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Japan has also got comparative advantage over the exportation of automobiles compared to
Kingdom of Saudi Arabia (Haber & Menaldo, 2011). This is because the costs of producing
mineral fuels, fertilizers are relatively low since KSA has got resources than Japan which is not
heavily endowed with oil. Therefore, in relation to resource endowment theory, each country has
got comparative advantage in a product or a good that it is endowed heavily with its resources or
factors. When A country specifies in one product, it therefore depicts that a government is in
struggle of strengthening its export base.
Impact of resource endowments on comparative advantage
It is evident that a comparative advantage exists only when the opportunity cost of
specializing in a given commodity is lower than that of other countries. The occurrence of
comparative advantage is ideally affected by the resource endowment. It is believed that
abundance and cost of land, labor and capital reduces the cost of production thus having low
opportunity cost in relation to other country (Haber &Menaldo, 2011). Besides, there are other
factors that affect country’s comparative advantage and these may include the level of financial
system and the economies of scale. For instance, the oil producing countries that is to say Saudi
Arabia have got comparative advantage in chemicals and other related products (Kumai, 2018).
This is because its locally produced oil provides raw materials that are very cheap for chemicals
as compared to other countries with Oil. Due to this result, Saudi Arabia is competitive with
Japan and other countries without oil with their firms in chemical production, this is because
Saudi Arabia’s chemicals are not expensive thus making its opportunity cost very low (Aslaksen,
2010).