Discuss differences in production technologies available in various countries as a basis for comparative advantage. In your answer, include a discussion of the role of and the location of R&D. In your answer, include a discussion of the role of and the location of R&D.

Question

What will be an ideal response?

Answer 1

POSSIBLE RESPONSE: Technology differences can become an important cause (sometimes the dominant cause) of the pattern of trade in specific products. Technology differences tend to skew production in each country toward producing the product(s) in which the country has the relatively better technology (that is, the technology of greatest advantage or least disadvantage). The technology explanation of trade is that countries export products in which they have relative technology advantages. Technology-based comparative advantage can arise over time as technological change occurs at different rates in different sectors and countries, and most industrially useful new technology comes from research and development (R&D). R&D that results in new technologies tends to be located in countries that are well endowed with the highly skilled scientists and engineers that are needed to conduct the R&D.