Definition of comparative advantage

The idea that a country or region should specialise in making and exporting goods and services that it can produce most efficiently. In turn, the country should import goods and services that it has a comparative disadvantage producing. This should in theory lead to an increase in overall trade.

This can be the case even if one country has an absolute advantage over another in producing a number of different goods. If this country puts more resources into its most efficient sector, thus making best use of its comparative advantage, in theory this allows another country to build up resources in other sectors, boosting international trade.

Discussion

Lexicon on Twitter