Final answer:
Michael Porter's Diamond of National Advantages suggests four key attributes for competitive advantage: factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry. Interaction among these attributes creates a conducive environment for certain industries in a country to excel and achieve a competitive edge. Specialization based on comparative advantage also plays a critical role in harnessing trade benefits.
Step-by-step explanation:
The four attributes that determine a country's competitive advantage, according to Michael Porter's Diamond of National Advantages, include:
- Factor conditions – The nation's position in factors of production, such as skilled labor, infrastructure, and technological know-how.
- Demand conditions – The nature of home-market demand for the industry's product or services.
- Related and supporting industries – The presence or absence of supplier industries and related industries that are internationally competitive.
- Firm strategy, structure, and rivalry – The conditions governing how companies are created, organized, and managed, and the nature of domestic rivalry.
These attributes interact with each other to create an environment where countries can achieve a competitive advantage in certain industries. Moreover, when a country specializes based on comparative advantage, it can benefit from the gains of trade by focusing on the production of goods for which it has a lower opportunity cost relative to other nations.