Question

Most capital goods have a world-wide market. If so how is it that one country can have an advantage in capital intensive goods? Won’t all other countries simply buy the same capital and if they pay lower wages won’t manufacture of those goods go to the low wage country? Why aren’t K/L ratios essentially the same?

Answer 1

Although capital Intensive goods have a world wide market, yet producing them can be highly expensive. Hence, it is affordable only for the rich countries to procure capital and thereby produce them. The Second part of the question can be stated as a real world scenerio as well. These circumstances are actually arising for the big name clothing brands and houses like Nike, Adidas etc. What these brands are doing is, they are going on to produce their finished products in labour Intensive countries like Bangladesh, Turkey etc. There, the production cost remains low and hence, mass prodction at a lower cost is made possible. The wages that these companies offer would never sustain labour in their home country and hence they use labour from these develping and underdeveloped countries for undertaking production.