Comparative Advantage and Competitiveness in East-West Relations

Any attempt to identify aspects of comparative advantage — which we can treat for this purpose as equivalent to competitiveness — from statistics of trade flows, must be subject to many qualifications. First, the conditions in which the (variously interpreted) principles of comparative advantage would wholly determine trade patterns — basically the conditions of a free trade world — are far removed from those of the world we know. Second, empirical studies based on trade statistics are necessarily confined to analysing the trade network of a particular period, more or less recent. Such studies may at best suggest a pattern of comparative advantage for an economy (or group of economies) at that specific time; this has come to be known as ‘revealed’ comparative advantage (although, as someone said of Bikini bathing costumes, it may reveal much but still conceals what is most vital). Revealed comparative advantage, and the same may be said of some interpretations of the theory, is essentially static. It cannot show, although it may suggest, the potential, or dynamic, comparative advantages that an economy might realise if circumstances, or the behaviour of economic agents, were to change.