What are the sources of comparative advantage?

Answer 1

== == Anything that might create a difference in the productivity of two countries would create a situation for comparative advantage. Legislation about work week length, incentive for innovations, taxes, etc.

As an example, take Bangladesh and the garment industry. Bangladeshi were trained by others in running textile shops to take advantage of cheap Bangladeshi labor. Managers at the first textile shop learned enough to be able to set up their own textile shops, and a vibrant garment-creation industry in Bangladesh sprung up, nourished by informed managers, cheap labor, and easy access to major trade routes. (Covered in Thomas Friedman's "The World is Flat")

Many industries have positive feedback cycles, and initial hot spots may grow and reinforce themselves over time. Silicon Valley in the United States, Banglaore in India, or Dublin in the EU.

Patent and trademark laws, or anything relating to the protection of intellectual property, may give some sort of comparative advantage. Innovators may be drawn to a country which offers greater potential rewards for profitable innovations. Likewise, laxer tax codes might draw high-earners.