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Altho Portugal produced both goods with less labor input than did England,
their relative costs differed: very hard to make English wine, less difficult to
produce cloth. Thus, Portugal should produce excess wine, and trade it for
English cloth. England benefits from free trade because its cost of producing
cloth is unchanged, but English now drink wine at closer to the cost of cloth.
In general, every nation should specialize in producing & trading those goods
in which it enjoys a comparative advantage – calculated not as co$t, but as
lower opportunity cost (= amount of good1 given up to produce unit of good2).
Free Trade Maximizes National Utility
Economists since Ricardo claim that “free trade” makes all nations
richer, as comparative advantages increase global production levels.
Without protectionism (e.g., high tariffs), free trade
enables nations to devote their scarce resources to
producing goods & services for which they enjoy
comparative advantage. Economies of scale plus
specialization increase the “production possibility
frontier,” yielding highest global customer utility.
1st World: Vodafone, GE, BP, Vivendi, DT, Exxon, Ford, GE, Shell, Total, Suez
3rd World: Hutchison, Singtel, Cemex, LGE, Petroleos de Venezuela, Petronas
In 2001, private capital flows to less-developed countries (including Central & Eastern
Europe) totaled $171 billion, versus $57 billion in official development assistance.
SOURCE: UNCTAD 2004 Development and Globalization: Facts and Figures
But, Most FDI Goes to Developed Nations