![]() Similarly, Bangalore might not be what it is today if vagaries of local politics had not led Texas Instruments to choose to locate their investment project there, back in 1984, rather than in any other Indian city. ![]() It has retained that role even though the canal is now used only for recreational boats. Historical contingency refers to the initial advantage given to a particular location in a specific industry, which gets locked in by external economies of scale even when those circumstances that created the initial advantage are no longer relevant.įor Example- New York became the financial center of the United States thanks to the Erie Canal, which made it the nation’s leading port. Well, the answer to it lies in the presence of historical contingency. But, why couldn’t Vietnam, which also has labor endowment advantage, or India, with low labor wage rates, has China’s dominance? It shows that comparative advantage partially explains the pattern of the trade. As a result, the relative cost of production is much less in China than in the United States, where 40 percent labor force is skilled, or Germany, where hourly wage rates are amongst the highest globally.Ģ. It is also known that China has a relative labor supply advantage due to its relative endowment and availability benefits over other countries, meaning that the rental cost of labor is comparatively much less due to the competitive environment.Īgain, market prices reflect the relative scarcity of a good, provided absence of any externalities. Button industry, as opposed to, say, the financial services industry, is a labor-intensive industry, primarily requiring abundant unskilled labor. China has a relative advantage in the production of buttons due to two primary reasons-ġ. Let’s first consider pre-trade conditions of the button industry compared to other countries. While the implications of these forward-falling supply curves are limited for the domestic economy, the post-trade results are somewhat very intriguing. ![]() Note that this is a unique case of a supply curve for a competitive market, which usually prevails in external economies of scale. Instead of a regular upward-sloping supply curve, the industry supply curve for an industry that takes advantage of external economies of scale is forward falling since additional production costs are consistently declining. Now, the case of an external economy is different because the market conditions it offers, both pre-and-post international trade, are severely different from those usually observed in the market space. The Silk Roads online platform provides an inventory of the major cities along these routes and a brief description of their history and importance in the development of the Silk Roads.It primarily means that the world supply of buttons emerges from a small town in China that cherishes the advantages of an external economy. In this way, over time, many Silk Roads cities attracted scholars, teachers, theologians and philosophers, and thus became great centres for intellectual and cultural exchange forming the building blocks of the development of civilizations throughout history. After travelling for weeks on end across inhospitable deserts and dangerous oceans, cities provided an opportunity for merchants to rest, to sell and buy, and moreover, to meet with other travellers, exchanging not only material goods but also skills, customs, languages and ideas. From Xi’an in China to Bukhara in Uzbekistan, from Jeddah in Saudi Arabia to Venice in Italy, cities supplied the ports and markets that punctuated the trade routes and gave them momentum. Cities grew up along the Silk Roads as essential hubs of trade and exchange, here merchants and travellers came to stop and rest their animals and begin the process of trading their goods.
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