Question

The textile industry in Bangladesh, counted as one of the poorest countries in the world, experienced a surprisingly positive turn when the old economic system based on preferred access was replaced with a system based on free trade.

David Ricardo's comparative advantage theory proposes that nations should specialize in the production of goods and then engage in international trade. Unrestricted free trade between nations raises the economic welfare of countries that participate in free trade. Michael Porter of the Harvard Business School has further developed the idea of comparative advantage by proposing four broad attributes that help impede or promote the comparative advantage of a nation.
1). Which factor helps Bangladesh's goods stay competitive when compared to goods from China?
A). Higher quality goods
B). The U.S. favors Bangladesh goods
C). Easier importation
D). Less tax on Bangladesh's goods
E). Fear of relying on a single country
2). According to Hecksher-Ohlin theory, which of the following gives Bangladesh a cost advantage?
A). Capital-intensive production
B). Technology-intensive production
C). Land-intensive production
D). Labor-intensive production

Answer 1

1). Which factor helps Bangladesh's goods stay competitive when compared to goods from China?

E). Fear of relying on a single country

Bangladesh works as a substitute to Chinese imports. Both Bangladesh and Chinese have a comparative advantage in the production of cheap goods such as textiles because of low labor costs, but companies would rather rely on more than one country (for example: China), so they move production to another country with similar conditions in other to diversify their sources.

This in turn increases the bargaining power of the suppliers according to Porter's model.

2). According to Hecksher-Ohlin theory, which of the following gives Bangladesh a cost advantage?

D). Labor-intensive production

According to Hecksher-Ohlin theory, countries specialize and export the goods that use intensively the factor of production that is most abundant. In Bangladesh, the factor of production that is most abundant is labor, and textile goods are intensive in labor, therefore, Bangladesh specializes in this type of goods and exports them.