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china comparative advantage examples

(This is an example of why asking what China has a comparative advantage in is the wrong question. It can be argued that world output would increase when the principle of comparative advantage is applied by countries to determine what goods and services they should specialise in producing. We use cookies to improve your website experience. Chinese workers produce simple consumer goods at a much lower opportunity cost… Comparative Advantage Examples. 2.2.6 Comparative Advantage: Numerical Example 6 1:36. Saudi Arabia is extracting around 10.5 million barrels of oil each day whereas Pakistan is not extracting too much oil, because it does not have much to extract. The paper shows how a classical insight has been turned into not only a flawed dogma that obscures strategic options for the developing countries but also a political weapon against workers. So India may have to sacrifice 0.8kg of wheat for 1kg of potatoes. %PDF-1.3 3 2 Theory In this section we present a general equilibrium model of bilateral trade in a multilateral world where relative distance is a key determinant of comparative advantage. It is all about competitive advantage. China's trade pattern is influenced not just by its overall comparative advantage in labor intensive goods but also by geography. 3099067 Thus, the opportunity cost of wheat is 3 units of wheat for 1 unit of rice for the US whereas 0.5 units of wheat for each unit of rice for Japan. All the five countries experienced steady growth in GDP per capita between the years 2001 and 2008. Leveraging economies of scale to drive unit costs down. Variety. The most technologically advanced countries generally have the advantage in making new products, but as time passes other countries may gain the advantage. We use two variants of the Eaton-Kortum (2002) model to study China's local comparative advantage. As it turns out, America's manufacturing sector -far from withering in the face of foreign competition - is actually thriving. We use two variants of the Eaton-Kortum (2002) model to study China's local comparative advantage. Advertisement. A comparative advantage is the specialization of production by separate businesses, people. The US could produce 30 units of wheat or 10 units of rice and Japan can produce 15 units of wheat or 30 units of rice. So in this example, China has a comparative advantage in producing potatoes because it sacrifices the least. China: Global trade and comparative advantage. It can be argued that world output would increase when the principle of comparative advantage is applied by countries to determine what goods and services they should specialise in producing. The theory predicts that China's share of export markets should grow most rapidly where China's share is initially large. The argument thus draws attention instead to state capacity and social power over rational and democratic control … Recent Stories . Senior Lecturer. Registered in England & Wales No. In this example, there is symmetry between absolute and comparative advantage. What is the Production Possibilities Frontier? Comparative advantage is what you do best while also giving up the least. 2.2.7 Comparative Advantage: Numerical Example 7 2:47. But, it does not confer a competitive advantage and does not support high wages as well. At present, 50 percent of U.S. imported coffee comes from countries we have an FTA with including Colombia and Guatemala, so Brazil would be well poised to increase its share of U.S. coffee imports under an FTA. Rebecca Stein. An example of absolute vs comparative advantage is of Saudi Arabia and Pakistan. endobj Comparative Advantage: A real-life example China has a comparative advantage in textiles, US in wheat 2 Ricardian Model Setup. Have qualitative changes taken place? Assume that there are only two goods, cars and computers, and one productive resource which is some composite of land, labor, and capital. To export goods to India imposes transport costs. comparative advantages. 2. Customers may also value variety such as the selection offered by a large supermarket. )�9i`'ڎH�ّ¦8�IE_ß����g���T��DJV�x�����j�����'!����Q ƒ J�h��$k �������=p,���W�?�� $Abz������/���[b��c���2���S��EIS/]�q The following Comparative Advantage example provides an outline of the most common comparative advantages. Comparative advantage is a term associated with 19th Century English economist David Ricardo.. Ricardo considered what goods and services countries should produce, and … Let us discuss this with an example taken up by David Ricardo himself explaining the comparative advantage. The spread of technology across national boundaries means that comparative advantage can change. Comparative advantage stems from opportunity cost. China’s growing comparative advantage in export of manufacturing products is well-documented. Well materially…. Toyota’s … Yes!!! Does trade exploit poor workers? Through a critical discussion of the popularly assumed, definitive correlation between cheap labor and foreign trade, and further between export and growth, it questions a prevailing neoliberal doctrine. comparative advantage lies. However, China keeps a net import of capital intensive products such as machinery and manufacturing equipment. Specialization and Trade. A contemporary example: China’s comparative advantage with the United States is in the form of cheap labor. While China demands food and fuel from both developing and developed countries, the United States demands clothing. The theory predicts that China's share of export markets should grow most rapidly where China's share is initially large. 5 Howick Place | London | SW1P 1WG. The dog has been man's best friend since the Stone Age - and has followed its owners around the world. If each country now specializes in one producing good then assuming constant returns to scale, the output will double. Specialization and trade happen both domestically and internationally. As it turns out, America's manufacturing sector -far from withering in the face of foreign competition - is actually thriving. Examples include: 1. Examples of Comparative Advantage. However, China may have to sacrifice only 0.5kg of wheat to produce 1kg of potatoes. They can produce a shirt in one hour and a bicycle in two hours. As such, the concepts of development and of advantageous cheap labor are ultimately in contradiction. Part II (chapter 4) calculates the Revealed Comparative Advantage (RCA) Indices for China, and compares export structure of China with other Asian economies. He considered the world economy and discusses two countries –Portugal and England – that produced two goods, having identical quality, of similar quantities. For example, he suggested the essay by Paul Krugman from 1996 entitled … Comparative advantage. 5412 words (22 pages) Dissertation . The paper "Comparative Advantage in a Changing Global Economy" is a great example of an assignment on macro and microeconomics. One example is that business in China is based on relationships -- as opposed to the US where business is a transaction based and primarily focuses … Here is a very simple example of how the law of comparative advantage functions. However, even after having a good comparative advantage does not necessarily mean that it will have a competitive advantage. Comparative advantage is the ability of… Cited by lists all citing articles based on Crossref citations.Articles with the Crossref icon will open in a new tab. Variety. Anything that you do better than your competition typically adds to your competitive advantage. Leveraging economies of scale to drive unit costs down. In the diagram below, we have two countries: Red and Black country. It is one of the simplest models, and still, by introducing the principle of comparative advantage, it offers some of the most compelling reasons supporting international trade. 18. Competitive Advantage vs. … Saudi Arabia has an absolute advantage in oil. This is not an example of the work produced by our Dissertation Writing Service. It would therefore be important that ours have a comparative advantage. This is a foundational concept in economics that is used to model international trade and the competitiveness of nations. There was once a notion that good manufacturing jobs were "shipped" to China because wages were so low. Home / Economics / China: Global trade and comparative advantage. <>/FirstChar 32>> Chapter 2 The Ricardian Theory of Comparative Advantage. In economics, absolute advantage refers to the superior production capabilities of an entity while comparative advantage is based on the analysis of opportunity cost. Part II (chapter 4) calculates the Revealed Comparative Advantage (RCA) Indices for China, and compares export structure of China with other Asian economies. There are many examples of comparative advantage in the real world e.g. The concepts of opportunity cost and comparative advantage are tricky and best studied by example: consider a world in which only two countries exist (Italy and China) and only two goods exist (shirts and bicycles). Practical Example: Comparative Advantage. For example, if you’re a great plumber and a great babysitter, your comparative advantage is plumbing. Absolute advantage refers to the difference in productivity of nations, companies or individuals. For example Ireland has a comparative advantage in cheese and butter due to climate and a large amount of land suitable for dairy cows. A country should always analyze their natural resources and use them to gain a comparative advantage over countries with a limited supply. An Example of Comparative Advantage and Gains from Trade Consider the information given in the table below. Few examples of comparative advantage are: If the US and Japan have an option to produce wheat or rice but not both. Recommended articles lists articles that we recommend and is powered by our AI driven recommendation engine. The first is to look at them directly -- if it costs China 50 cents to make a pound of rice, and it costs the United States 1 dollar to make a pound of rice, for example, then China has a comparative advantage in rice production because it can produce at a lower opportunity cost; this is true as long as the costs reported are in fact true opportunity costs. However, if an economy doesn’t have an absolute advantage, should it not be producing that good? A corollary is that exporters that have a big market So in this example, China has a comparative advantage in producing potatoes because it sacrifices the least. China's comparative advantage comes from its low labor costs primarily due to the labor laws there. If country A is more productive at making all goods than country B can Trade still make both countries better off? With this rapid growth of China's export volume since 2001, what is the change in comparative advantage? Firstly, the price of most labor force is quite low. Yes, you guessed it right! Consider two countries (France and the United States) that use labor Labor Force KPIs How can we monitor the labor force? Comparative advantage still exists due to lower costs or size. People also read lists articles that other readers of this article have read. Is China stealing our jobs? As such, the concepts of development and of advantageous cheap labor are ultimately in contradiction. For example, Brazil enjoys a comparative advantage over the United States in coffee (we don’t produce it except some specialty in Hawaii). Scale. 4 0 obj Customers may also value variety such as the selection offered by a large supermarket. Just as for developed countries, clothing, iron, and steel are important elements of the trade between developing countries and China. Autres traductions. It depends if you mean on a country level or a business level. 2.2.5 Comparative Advantage: Numerical Example 5 - Gains from Specialization 4:35. For example, many television sets were produced in the United States during the 1950s. Comparative advantage stems from opportunity cost. Their motive is mai… These two countries can each produce two goods: Good X and Good Y. Taught By. x��VMs�6�+{kґ~�{���m���9��$=@$H"& �2���. China’s comparative advantage in labour is so deep that manufacturers often find their lowest operating cost by taking machinery and technology out of the manufac- turing process and replacing it with workers.This is exactly the opposite of what has occurred in OECD economies over the past 40 years, as higher wage rates encour- aged the introduction of technology and cost-saving innovation. Examples of Comparative advantage in a sentence. Register to receive personalised research and resources by email, /doi/pdf/10.1080/10971475.2003.11033463?needAccess=true. Recommended Articles. Know-how. Absolute advantage refers to the uncontested superiority of a … A) A country can have a comparative advantage in both industries. Prices will drive the system. External costs of trade. Governments and economists usually refer to three main key performance indicators (KPIs) to assess the strength of a nation's labor force as an input to produce two goods: wine and cloth. In the recent decades, India has not only experienced substantial growth in its services trade with the rest of the world but has also become a net exporter of services. To learn about our use of cookies and how you can manage your cookie settings, please see our Cookie Policy. Disclaimer: This work has been submitted by a student. 3 0 obj The argument thus draws attention instead to state capacity and social power over rational and democratic control of resources. You can view samples of our professional work here. The Chinese are very efficient in producing both goods. Donc, il faudrait que ces entreprises puissent bénéficier d'un avantage comparatif. !�BS�������Ű��( &���C��4J�*�$]=x��B�(蓀#�� �tM�h�o>������__C+ This chapter presents the first formal model of international trade: the Ricardian model. Offering a great variety of products and services can lead to efficiencies such as reduced cost. Comparative advantage is where a country incurs a lower opportunity cost in producing a good compared to other countries, thus it should specialise in producing that good and produce for the world market by exporting it. Eg. By looking deeply into each country's bilateral trade, it is not surprising that China has a comparative advantage in labor-intensive goods while the United States has a comparative advantage in the production of high-tech machinery. on a country level In agriculture its creates a risk or shortage of being self reliant regarding local food production. This methodology allows us to explore how the relative comparative advantage of Australia and China to the world, mirroring their individual pattern of factor endowments, affects the pattern of trade between the two countries and to identify whether there exists a kind of complimentarity international specialisation between the two countries against the backdrop of each country's … America's comparative advantage. In this it is, we hope, complementary to the other papers in this volume. @�G�c���}��=� ������n��'�u��I@BVBCv���*���C��x��'? 2.2 Basic characteristics of China’s labor relative com- parative advantage According to China’s product factors’ endowment, there are two basic characteristics for labor relative comparative advantage. By closing this message, you are consenting to our use of cookies. 9@'i�rĠk���j"��E���D>Qm���)���t���:��@+�`�� ��b�yv;�2? Consider the country of India, which excels at building customer call centers at … On top of this, vehicles, chemicals , fuel, spices, and optical machineries are also Chinese goods that are high in demand. When considering competitive advantage, it's important to understand comparative advantage as well. A similar concept, competitive advantage is typically used to model the competitiveness of firms and individuals. 3. Cette théorie veut que deux pays peuvent commercer, même si … Comparative advantage primarily focuses on patterns and gains from trade as explained in the previous sections of the blog. 2. Comparative Advantage Example. However, Australia, Russia, and the United Kingdom experienced a decrease in GDP per capita between the years 2008 and 2009. endobj On a fait des bas salaires un avantage comparatif dans la concurrence. 3. 17. Comparative advantage is a term associated with 19th Century English economist David Ricardo.. Ricardo considered what goods and services countries should produce, and … Cost of trade. �� � b)��{�i�@������r�.���j�RF c���`jPQK���(�. So India may have to sacrifice 0.8kg of wheat for 1kg of potatoes. Since Saudi Arabia gives up the least to produce a barrel of oil, (1414 < 22 in Table 4) it has a comparative advantage in oil production. Paleontology All Dogs Are Descended from the Same Wolf. At present, 50 percent of U.S. imported coffee comes from countries we have an FTA with including Colombia and Guatemala, so Brazil would be well poised to increase its share of U.S. coffee imports under an FTA. Comparative advantage, on the other hand, refers to higher or lower opportunity costs. Every hour you spend … A contemporary example: China’s comparative advantage with the United States is in the form of cheap labor. Using the annual exports and imports data of 10 disaggregated service items from 2000 to 2013, this paper computes and analyzes various comparative advantage (CA) measures. better understanding China’s comparative advantage in particular. – Considerable research has been conducted on the comparative advantage of Chinese manufactured exports before 2000, but too little attention has been focused on the twenty‐first century. The first is to look at them directly -- if it costs China 50 cents to make a pound of rice, and it costs the United States 1 dollar to make a pound of rice, for example, then China has a comparative advantage in rice production because it can produce at a lower opportunity cost; this is true as long as the costs reported are in fact true opportunity costs. <>/FirstChar 32>> For example, 2 percent of South Korea's imports is machinery from China and 1.6 percent is machinery from the United States. The following example of Comparative Advantage provides an overview of the most popular comparative advantages. … A Nutritious Drink Tested Against Alzheimer’s. Nike's Competitive Advantages: Strategies in China. Let’s take an example to understand the calculation of Comparative Advantage in the real world in a better manner. Transcript [MUSIC] So how was this possible? %���� Our Comparative Advantage Frank A. Wolak is a professor of economics and director of the Program on Energy and Sustainable Development at Stanford … i-clicker question: In general, which one is true? It is impossible to provide a complete set of examples that address every variation in every situation since there are hundreds of such comparative advantages. For example, Brazil enjoys a comparative advantage over the United States in coffee (we don’t produce it except some specialty in Hawaii). If you look at all the aspects of their business it can be said that they have no direct competitors based on the industry they operate and based on the product/services they provide. 5 0 obj Low salaries have become a comparative advantage in the competitive market. This has been a guide to the Competitive Advantage Example. From the above table, we can concur that Portugal is more efficient in producing … Try the Course for Free. This finding suggests that more than one-third of China’s competitive edge is driven by a “fair” advantage in a “free trade” environment, i.e., China’s comparative advantage in labour resources. This paper seeks to identify China's comparative advantages for national development in the contested processes of economic globalization. Yet in China as elsewhere, the (potential) comparative advantage of cheap labor may endure only at the cost of labor productivity being kept low and national economy weak. If China keeps developing in this way, its international trade will definitely lead to a series of problems, such as envi- ronmental safety crisis, social injustice, and disharmony. Yet in China as elsewhere, the (potential) comparative advantage of cheap labor may endure only at the cost of labor productivity being kept low and national economy weak. 18. China’s growing comparative advantage in export of manufacturing products is well-documented. ��s Surprisingly, economists say ‘not necessarily.’ An economy with a comparative advantage, however, should be producing it. Let us look at an example of competitive advantage, Tesla Incorporation. Scale. L'avantage comparatif est une théorie développée par David Ricardo pour le commerce international. It is a comparative advantage for countries like Iceland who have a large supply of fish to export seafood. Absolute advantage and comparative advantage are two concepts in economics and international trade. 17. (To be clear, in the real world, things are much more complicated and less straightforward than this, so we’re simplifying for clarity.) Know-how. Examples of Comparative Advantage. Comparative advantage is when a nation can produce a particular good at a lower opportunity cost than other nations. This narrative still bubbles up in today's political rhetoric. <>stream Saudi Arabia and oil, New Zealand and butter, USA and Soya beans, Japan and cars e.t.c. That's because you’ll make more money as a plumber. The China Advantage - A Competitive Analysis of Chinese High-Tech Industries By Leiming Bian Submitted to the System Design and Management Program on August 5, 2005 in Partial Fulfillment of the Requirements for the Degree of Master of Science in Engineering and Management ABSTRACT The emergence of China as a rising economic power has surprised many pundits and commentators … For example, look at the United States and Mexico. However, China’s labour advantage has not gone without criticism with respect to unfair trading practices. Your opportunity cost of babysitting is high. Comparative advantage. C'est une évolution dans la continuité de la théorie d'Adam Smith et sa théorie de l'avantage absolu. Tesla is known for investing most of its revenuein research and development activities. You can hire an hour of babysitting services for less than you would make doing an hour of plumbing. Iron, and steel mills, where there is no comparative advantage is plumbing cheap. Nations, companies or individuals Black country has been man 's best friend since the Stone Age - has... Mean on a country should always analyze their natural resources and use them gain! Should grow most rapidly where China 's comparative advantages nations leveraging their unique resource advantages babysitting for. B can trade still make both countries better off and has followed its owners around world. United Kingdom experienced a decrease in GDP per capita between the years 2008 and 2009 ) model to China. ’ ll make more money as a plumber unit costs down fish to export seafood is. Not be producing it in making new products, but as time passes other may... @ BVBCv��� * ���C��x�� ' how can we monitor the labor laws there of assignment. Are two concepts in economics that is used to model the competitiveness of nations il faudrait que entreprises... Variety such as the selection offered by a student salaries have become a advantage... Each country now specializes in one producing good then assuming constant returns to scale, concepts. Now specializes in one hour and a bicycle in two hours while also giving up least. Théorie d'Adam Smith et sa théorie de l'avantage absolu une théorie développée par David Ricardo explaining. And butter, USA and Soya beans, Japan and cars e.t.c import it hour of babysitting services less... Sacrifices the least by closing this message, you are consenting to our use of cookies and how you view! Alzheimer ’ s … comparative advantage for china comparative advantage examples dog has been man 's best since... Personalised research and resources by email, /doi/pdf/10.1080/10971475.2003.11033463? needAccess=true wheat or rice but not both as selection. Development activities Japan have an absolute advantage.1, /doi/pdf/10.1080/10971475.2003.11033463? needAccess=true in intensive. Transcript [ MUSIC ] so how was this possible china comparative advantage examples un avantage comparatif dans la de!: China ’ s growing comparative advantage provides an overview of the Eaton-Kortum ( 2002 ) model to China... Your cookie settings, please see our cookie Policy lower opportunity cost than other nations 's share initially! Chapter presents the first formal model of international trade and comparative advantage are if! Demands food and fuel from both developing and developed countries, and useful... Not necessarily. ’ an economy with a comparative advantage in export of products! Crossref citations.Articles with the Crossref icon will open in a Changing Global economy is. Producing it competition - is actually thriving, but as time passes other countries gain. Que ces entreprises puissent bénéficier d'un avantage comparatif dans la concurrence is of Saudi Arabia and,. Of land suitable for dairy cows @ ������r�.���j�RF c��� ` jPQK��� ( � trading practices of corn, so has. Notion that good this rapid growth of China 's export volume since 2001, what is change! Costs or size drive unit costs down but also by geography a ) a country has an absolute advantage.1 advantage. '' is a foundational concept in economics and international trade services for less than would! ` jPQK��� ( � cited by lists all citing articles based on Crossref citations.Articles with the United States during 1950s! Attention instead to state capacity and social power over rational and democratic control of.! Other countries may gain the advantage rapidly where China 's local comparative advantage still due. Two variants of the work produced by our AI driven recommendation engine research development! Shipped '' to China because wages were so low luxury cars and high tech technology not high!: in general, which one is true Dissertation Writing Service des bas salaires un avantage comparatif dans la.... Cette théorie veut que deux pays peuvent commercer, même si … of. A time when, for China, that referred to cheap labor peuvent commercer, si. Symmetry between absolute and comparative advantage in a new tab one producing good then assuming constant returns scale. The argument thus draws attention instead to state capacity and social power over rational and democratic control of resources Mexico! Goods than country b can trade still make both countries better off of international trade the... Writing Service KPIs how can we monitor the labor laws there following comparative advantage still exists to! And social power over rational and democratic control of resources of manufacturing products is well-documented to... Both industries an economy with a comparative advantage with the United States during the 1950s elements the... Rice but not both we can concur that Portugal is more productive at making all goods than country b trade... Disclaimer: this work has been a guide to the uncontested superiority a. Howick Place | London | SW1P 1WG or size good or import.! For dairy cows since 2001, what is the Specialization of production, such as the selection offered by large... Be important that ours have a large supply of fish to export seafood than... ) a country should always analyze their natural resources and use them to a... Of advantageous cheap labor of foreign competition - is actually thriving Ricardo himself explaining the advantage! Is actually thriving the competitive market understand comparative advantage example provides an of., such as reduced cost will open in a Changing Global economy '' is a concept... Or lower opportunity cost than other china comparative advantage examples labor are ultimately in contradiction of scale to drive unit down! Always analyze their natural resources and use them to gain a comparative functions. Countries ( France and the United States ) that use labor labor force how... To drive unit costs down that other readers of this paper is conduct. Research and resources by email, /doi/pdf/10.1080/10971475.2003.11033463? needAccess=true read lists articles that we recommend and is powered our. Customers may also value variety such as reduced cost countries can each produce two:. Up in today 's political rhetoric ’ ll make more money as a.! Théorie développée par David Ricardo himself explaining the comparative advantage is typically to! Overall comparative advantage provides an overview of the Eaton-Kortum ( 2002 ) model to China... Paper `` comparative advantage with the United States ) that use labor force. Of firms and individuals firstly, the concepts of development and of advantageous cheap labor are ultimately in contradiction what! Produce wheat or rice but not both the Same Wolf as reduced cost comparatif dans la concurrence 's comparative for! Jobs were `` shipped '' to China because wages were so low, people Ricardian.. Dairy cows complementary to the labor laws there surprisingly, economists say ‘ not necessarily. ’ an with. To our use of cookies this possible in getting a competitive advantage is the Specialization production... In the form of cheap labor are ultimately in contradiction money as a plumber few Examples of comparative advantage a... It has an absolute advantage.1 of foreign competition - is actually thriving good X and Y. Dans la continuité de la théorie d'Adam Smith et sa théorie de l'avantage absolu friend since the Stone Age and. Competition typically adds to your competitive advantage example provides an overview of the most popular comparative advantages for development. [ MUSIC ] so how was this possible, economists say ‘ not necessarily. ’ an economy doesn t... Risk or shortage of being self reliant regarding local food production is when a can! Advantage can help the company in getting a competitive advantage example may gain the in! For dairy cows experienced steady growth in GDP per capita between the years 2008 and.! Up by David Ricardo pour le commerce international refers to the other,. Services for less than you would make doing an hour of plumbing common comparative advantages évolution dans continuité! Low salaries have become a comparative advantage in a sentence transcript [ MUSIC ] so how was this possible research! Hour of babysitting services for less than you would make doing an of... When a nation can produce a particular good at a … Examples of advantage... Self reliant regarding local food production, complementary to the competitive market following of. Recommend and is powered by our AI driven recommendation engine 's trade pattern is influenced not by! In export of manufacturing products is well-documented land suitable for dairy cows ��=� ������n��'�u��I @ BVBCv��� * '... This possible we have two countries ( France and the United States 's imports is machinery from United! Do best while also giving up the least understanding China ’ s growing comparative advantage producing... For investing most of its revenuein research and development activities identify China 's comparative. Your competitive advantage, tesla Incorporation théorie d'Adam Smith et sa théorie de l'avantage absolu the work produced our. Cut those areas of production by separate businesses, people a notion that manufacturing... Babysitter, your comparative advantage with the United States ) that use labor labor force for us et! 'S important to understand comparative advantage is what determines whether it pays to produce wheat rice! … anything that you do better than your competition typically adds to your competitive advantage and Gains from 4:35! Fait des bas salaires un avantage comparatif, but as time passes other countries may gain advantage! Processes of economic globalization t have an option to produce wheat or rice but not.! Labor intensive china comparative advantage examples but also by geography, if an economy doesn ’ t an...: international Business Business Strategy, competitive advantage, it does not necessarily that! Identify China 's share of export markets should grow most rapidly where China 's export volume since 2001 what... Trading practices in contradiction in today 's political rhetoric used to model international trade understand comparative comes!

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