International Trade Theory and EU Enlargement

Abstract

The concept of international ‘competitiveness’ has aroused considerable controversy between economists and management specialists and between economists themselves.1 The fundamental economic assumption underlying the analysis in this book is the Ricardian concept that the ‘competitiveness’ of a given industrial sector for any given country in international trade reflects that country’s comparative, or relative, advantage in the production of the good in question, and that an economy must be competitive in the production of some set of goods and services regardless of its overall level of development. The principles of comparative advantage indicate that an economy will be competitive in the production of goods and services which it can produce relatively more cheaply (measured in terms of the foregone production of other goods and services which are used in the production of the given good) than other economies. Even if the techonological levels of a country’s capital stock are so poor that it has an absolute disadvantage in the production of all goods, it must be capable of producing some goods relatively more cheaply than other economies. The critical problem that the CEE economies inherited from communism in this respect was that the structures of production that they had adopted under forced industrialisation and the Stalinist model of development had been determined by political priorities and were not based on concepts of comparative advantage.