Comparative Advantage

With an abundance of low-priced labour relative to the United States, it is no surprise that China, India, and other developing countries specialize in the production of labor-intensive products. For similar reasons, the United States will specialize in the production of goods that are human and physical capital intensive because of the relative abundance of a highly educated labour force and technically sophisticated equipment in the United States. This division of global production should yield higher global output of both types of goods than would be the case if each country attempted to produce both of these goods itself. For example, the United States would produce more expensive labor-intensive goods because of its more expensive labour and the developing countries would produce more expensive human and physical capital-intensive goods because of their relative scarcity of these inputs. This logic implies that the United States is unlikely to be a significant global competitor in the production of green technologies that are not relatively intensive in human and physical capital.