Question

You just overheard your friend say the following: "poor countries like Malawi have no absolute advantages. They have poor soil, low investments in formal education and hence low-skill workers, no capital, and no natural resources to speak of. Because they have no advantage, they cannot benefit from trade." How would you respond?

Answer 1

Though poor countries do not have absolute advantage, the international trade happens when there is comparative advantage between countries. Countries get benefit or find an opportunity for trade when there is high opportunity costs associated with any production activity. Any nation though it may not have natural resources to compete with others to carry out production activity, it would have bestowed with other resources like tourism sector. So Malawi might incur higher cost in carrying out production activities instead it can import and concentrate on tourism activity which would help to earn good revenue.