Economics Comparative Advantage Questions
The relationship between comparative advantage and foreign direct investment is that comparative advantage can be a driving factor for foreign direct investment. Comparative advantage refers to a country's ability to produce a good or service at a lower opportunity cost than another country. When a country has a comparative advantage in a particular industry, it means that it can produce that good or service more efficiently and at a lower cost compared to other countries.
Foreign direct investment (FDI) occurs when a company or individual from one country invests in a business or project in another country. FDI is often driven by the desire to take advantage of a country's comparative advantage. Companies may choose to invest in a foreign country that has a comparative advantage in a specific industry, as it allows them to benefit from lower production costs, access to specialized resources, or a skilled labor force.
In summary, comparative advantage can attract foreign direct investment as companies seek to capitalize on the efficiency and cost advantages offered by a particular country in a specific industry.