Economics Report: Comparative and Absolute Cost Advantage Analysis

This economics report investigates the concepts of comparative and absolute cost advantage within the context of technological development in developing countries. It begins by defining these economic principles, explaining how comparative advantage relates to a country's productivity relative to others and absolute advantage to a country's overall cost efficiency and output. The report emphasizes the significance of these advantages in international trade and economic growth, illustrating how countries can specialize in producing goods and services where they hold a comparative advantage. It uses examples of developing nations such as China and Japan to demonstrate their advancements in technology and the resulting impact on global trade dynamics. Furthermore, the report explores the methodology employed, including quantitative research methods and the use of artificial intelligence to gather and analyze data from various sources. The conclusion highlights the importance of these cost advantages in shaping the technological landscape of developing countries, emphasizing the shift in production from developed nations to countries with lower labor costs and comparative advantages in specific sectors.

Running Head: ECONOMICS 1
Comparative & Absolute Cost Advantage in Developing Countries In Terms Of Technology
Name
Affiliation
Date

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Introduction
For the purpose of this paper, focus will be on the absolute and comparative cost
advantage in relation to technology in developing nations. Comparative cost advantage relates to
the level of productivity of a given country as compared to another. In simple terms, it means
how much cost-efficient or productive a given country6 has over another. Economists believe
that the output of the world would raise if the comparative cost advantage is implemented in
various countries so as to understand the kind of services and goods that they should specifically
produce. In the 10th century, David Ricardo an economist illustrated "that countries should
consider the services and products that they can produce in order to specialize by investing the
resources into the production of services and goods for which they have a comparative
advantage." On the other hand, the absolute cost advantage implies that a given country is more
cost-efficient or more products as compared to another country (Bernhofen and John, 2016). The
theory of economics indicates that if nations put into consideration the comparative cost
advantage and absolute cost advantage principle into action, the joined output will raise as
compared to the output produced in case the two nations tried becoming self-sustaining and
allocate their resources into the production of two categories of goods say Phones and
computers. In the production of a given commodity, absolute cost advantage is neither sufficient
nor necessary for beneficial trade. For example, a given country may experience an absolute cost
disadvantage in manufacturing its goods compared to another nation, yet that country may decide
to derive its gains by concentrating in international trade with other states as a result of
comparative cost advantage of producing some goods as compared to other nations (Eaton and
Kortum, 2012).

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Currently, various developing countries have embarked on technological development
such as computers, phones, and many others. In this case, country Y can produce 40 million
computers or 60 million phones and another country C can produce 50 million computers or 80
million phones. Therefore, country C has an absolute cost advantage of producing both of the
products but it also has a comparative cost advantage in Phones because it produces more of
them. This means that country C is better at producing phones as compared to computers
(Alpaydin and Ethem, 2010).
Research objectives
The major objective of this paper is to draw a clear understanding of the comparative and
absolute cost advantage of developing countries in regards to technology. The objective is aimed
at illustrating how developing countries have incorporated the principles of cost advantage to
attain economic growth over other nations. Also, the paper discusses the various skills that have
been incorporated by the developing countries to make sure that they develop technology on
their own such as computers, phones, and many others. More so, the relationship that exists
between comparative and absolute cost advantage in developing technology is explained (Mohri
et al, 2012).
Research question
Basing on the above research objectives, the major research question for this study will be:
 What is the comparative and absolute cost advantage of developing countries in
technological development??
 How have developing countries been in the position to develop technology on their own?

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Literature Review
Technological development by developing countries
Literature indicates that the development of technology provides a greater trade
advantage in the form of comparative and absolute cost advantage. The developing countries
such as china, Japan and many others have been the major exporters of technological products
such as computers and phones. The most important aspect of technology is that; it changes very
fast. For example in the past few years, China had a poor economy but currently, it is among the
fast technological developing countries putting much focus on phones, televisions and many
other products. Since the 1960s, the field of producing computers has raised and the costs
involved in production have reduced respectively. Considerably, some of the countries that were
taking the lead of producing computers, there is a possibility that they will be outcompeted by
newcomers such as Japan (Harrington, 2009).
Currently, developing countries have advanced technology by strengthening the
worldwide trade that is to say e-commerce, addressing the issues of long geographical distances
by providing efficient, real-time, and fast ties between individuals and businesses across the
world. By the end of the 20th century, the industry of information technology was taking over
world trade as compared to textiles, automobiles, and agriculture. Therefore, the spread of
technological advancement across the borders of developing countries implies that their
comparative and absolute cost advantage can experience change. As time passes, the countries
that had a comparative cost advantage of producing computers and phones may be outcompeted
by other nations (Simonite, 2018). For example, the United States was the leading producer of
televisions and phones but as time passed and technology changed, the industry began to slowly

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decline, meaning that there was limited cost advantage in the United States for producing
televisions. Therefore, the producers of televisions decided to look for other locations like
Taiwan, Hong Kong and many other areas with comparable wage rates. Currently, the United
States took over the production of supercomputers, development of new applications and
computer software (Schumacher, 2012).
Methodology
The research design of this study is all about the selected research approach. In this case,
the research is concerned about a quantitative approach comprised of a limited description of the
variables which could be quantified. The reason for using a quantitative approach is that it may
help in obtaining diverse results of the research which could not be the case if a quantitative
approach is adopted since the variables in the research are not tangible (Zimring and Etkes,
2014).
For this research, data could be collected by using questionnaires which helps in fulfilling
the primary objective of the primary collection of data. Artificial intelligence or machine
learning will be used to determine the effectiveness of technological advancement in developing
countries. Also, secondary data will be done with the assistance of machine learning such as
voice data collection application, so as to obtain data from various sources such as academic
journals, research publications, and papers published by United. Also, artificial intelligence will
be incorporated to interpret various secondary sources in different languages so as to make the
process of data collection easier and faster. Further, artificial intelligence will be adapted to
process data that is in a binary format so as to turn it into meaningful information (Bernhofen
and John, 2016).

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Conclusion
The research proposal indicated the nature of comparative and absolute cost advantage
that developing countries have in terms of technology, that is to say, computers, and phones.
Also, the proposal indicated various the different skills that various countries have in developing
their own technology.

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References
Alpaydin, E. (2010). Introduction to Machine Learning. London: The MIT Press. ISBN 978-0-
262-01243-0
Bernhofen, D., John, B. (2016). "Testing the General Validity of the Heckscher-Ohlin
Theorem". American Economic Journal: Microeconomics. 8 (4): 54–
90. doi:10.1257/mic.20130126
Eaton, J., Kortum, S, (2012). "Putting Ricardo to Work†". Journal of Economic
Perspectives. 26 (2): 65–90. doi:10.1257/jep.26.2.65
Harrington, J, W.(2009)."International Trade Theory". Geography 349 Absolute advantage. The
University of Washington. Retrieved 2009-05-04
Mohri,M., Rostamizadeh, A., Talwalkar, A., (2012). Foundations of Machine Learning. USA,
Massachusetts: MIT Press. ISBN 9780262018258.
Schumacher, R. (2012). Free Trade and Absolute and Comparative Advantage(Thesis).
University of Potsdam
Simonite, T. (2018). "Microsoft says its racist chatbot illustrates how AI isn't adaptable enough
to help most businesses". MIT Technology Review.

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Zimring, A,. and Etkes, H. (2014) "When Trade Stops: Lessons from the 2007–2010 Gaza
Blockade". Journal of International Economics, forthcoming