O LevelEconomicsCambridge (CIE)Revision Notes6. International Trade & Globalisation6.1 International SpecialisationReasons for National Specialisation

Reasons for National Specialisation (Cambridge (CIE) O Level Economics)

Revision Note

Steve Vorster

Reasons for National Specialisation

  • Specialisation occurs on several different levels

    • On an individual level where a worker specialises in a particular task

    • On a business level, e.g. one firm may only specialise in manufacturing drill bits for concrete work

    • On a regional level e.g. Silicon Valley has specialised in the tech industry

    • On a national level as countries seek to trade e.g. Bangladesh specialises in textiles and exports them to the world 

  • The two main factors which allow a country to specialise are:

  1. Superior resource availability: If the quality of the resource is relatively better than other nations, the country will be able to charge higher prices for it. Alternatively, if a country has a higher quantity of the resource then it may be able to lower prices and drive competitors out of business by specialising in its extraction and sale

  2. Cheaper production methods: If the country has lower costs of production, then it is very likely that they will be able to lower selling prices and gain a lead in the international market share. Some countries are able to produce cheaply using machinery or technological innovation, whilst others do so by providing large labour force which can perform manual tasks very cheaply

Advantages and Disadvantages of National Specialisation

Pros and Cons of National Specialisation

Pros

Cons

  • Greater competition may increase productivity. Higher  productivity lowers cost / unit for firms, which makes their goods more competitive internationally (exports)

  • International trade is beneficial for the firms that can compete globally.

  • However, some industries will be unable to compete and will go out of business

  • Increased exports can result in economic growth for the nation

  • Many firms in an entire industry may close leading to structural unemployment 

  • Economic growth usually leads to higher income and a better standard of living

  • Specialisation may create over-dependency on other countries' resources.

  • This may cause problems if conflict arises (For example,

  • Europe's reliance on Russian natural gas during the Ukraine crisis)

  • Income gained from exports can be used to purchase other goods from around the world (imports).

  • This increases the variety of goods available in a country

  • Specialisation using a country's own resources will lead to resource depletion over time.

  • Specialisation will increase the rate of resource depletion

  • Global efficiency in the use of scarce resources improves as resources are extracted by nations who have the competitive advantage

  • As multinational firms grow in size and increase market power, they can dictate prices and output in many regions.

  • They are also able to wield their power to influence governments and gain access to raw materials through bribery and corruption 

  • With an increase in specialisation and output, it is possible to generate significant economies of scale which further lower production costs

  • Start-up firms in developing countries (infant industries) find it harder to compete due to global competition - the ones that survive often have government support.

  • Global monopolies also exert large amounts of pressure on developing countries 

 

  • Over-specialisation in developing economies often occurs as they lack the finance to develop a diversified product base and end up over-specialising in commodity products.

  • This makes the country's GDP very dependent on the commodity prices

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    Steve Vorster

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