Introduction
This paper is meant to determine whether or not the theory of comparative advantage applies to China with respect to the industrialized world. We will also touch on how the theory of factor endowment applies to China. There are some countries which operate in autarky, which will be discussed as well. Finally, we will examine how the distribution of gains from free trade causes much political debate regarding trade with China.
China – Comparative Advantage and Factor Endowment
China has a substantial comparative advantage due in part to its vast and inexpensive manpower used for labor purposes. China is a hub for production of various types of products. Raw materials are imported in China from the US and other countries around the world. Labor in china is so inexpensive, that it has been averaged at .047 cents per hour.
China also has a substantial abundance of raw materials such as arable land, forest covering, grasslands, water resources, hydropower sources, coal reserves and iron ore deposits. China also enjoys an abundance of scientific & technological advances and developed educational systems. In ranking, they are lacking in electricity generation, crude oil existence and steel production (University, 2008)
Due to the aformenetioned, China enjoys many business partners from around the globe for the purposes of providing inexpensive production methods. These products, which may cost less than $3.00 to produce, are now being sold at Walmart for more than five times the price. This is a rather substantial turaround.
Regardles of China’s comparative advantag, the theory of facto ...