How does absolute advantages change over time (if they do)?
1 Answer
We would expect absolute advantage to shift in response to changing levels of human capital.
Explanation:
Absolute advantage refers to the ability to produce more with equivalent resources or to produce the same level of goods or services with fewer resources. The only differentiation I can imagine in this regard is a change in the skill or knowledge of the workforce. Two countries (or firms) with the same exact resources would only differ in the abilities of their workers.
On the other hand, we often view a nation as having a comparative advantage when it has a lower opportunity cost for producing a good or service. The lower opportunity cost often refers to the differences in productivity levels between nations. However, we also know that increasing levels of capital investment will increase the productivity of workers.
Thus, developing nations often have comparative advantage in goods or services that require more labor-intensive production, but such nations usually lack the level of capital investment of developed nations. In other words, poor nations don't have the opportunity to produce many high value goods and services because they do not have the infrastructure to build, for example, jet engines or precision machinery.
Thus, I am not sure if a comparative advantage in low-value goods implies lack of absolute advantage in high-value goods -- because producers of low-value goods never seem to have the same resources as producers of high-value goods. But, workforce skill and education do seem to correlate with production of higher-value goods and services.
