Business Economics: International Trade and Comparative Advantage

Working Title : Business Economics : International Trade and Comparative

Advantage

Nowadays , it is not impossible to produce products from almost anyplace in the world because the new technologies that is not restricted by location or even atmospheric conditions like agriculture for instance carrying costs have also diminished over the decades due to the innovations in transportation and capital investments are becoming more fluid in nature not to mention the booming number of educated intellectual , and skilled people from almost anywhere on earth . Trade liberalization between countries has also broken down the barriers

of trade within the country-to-country markets , making it easier for almost any company in the world to invest or outsource production in other usually developing countries

Nuevo Laredo , a city in the Tamaulipas state in Mexico , is a typical city whose economy is fueled by a great deal of American automobile companies outsourcing the manufacturing of their engine parts for export back to the United States and other countries . In the aftermath of the approval of the North American Free Trade Agreement (NAFTA ) between Canada , the United States , and Mexico in December of 1992 , automotive Maquiladoras (a Mexican term for a factory whose raw materials are imported and made into products for export ) began to gain attention from investors largely because of its proximity to the b to the United States : the city just lies south of the Rio Grande River across the city of Laredo in Texas

Here , automobile companies only manufacture engine parts such as the new Autoturbo and V-8 Quattro models instead of assembling the whole automobile unit which is done usually in Detroit , Michigan or at the main plant of the company somewhere else . This practice has become a trend in most companies today primarily to save production costs in the assembly line and thereby raise substantial profits . The practice has long been a part of international trade especially during the ongoing shift to globalization and trade liberalizations . Japanese automobile companies , as a matter of fact , have long been doing such concept in the past wherein assembly line encompasses several and mainly developing countries involved such as Thailand , Indonesia , and the Philippines

In the case of Mexico and the United States , the former has a comparative advantage when it comes to providing labor . As compared with the latter , labor services in Mexico are cheaper to those in the highly industrialized nations . Outsourcing the manufacturing , therefore , of engines in the Mexican State city makes it more of an opportunity for the company to raise its profits . Even before the ratification of NAFTA Nuevo Laredo has been known in the Mexican local industry for the production of automobile parts . Several workers are been skilled in the making of engine designs and this makes it practical for companies , much lest foreign ones , to make use of this and cash it in for their favor This fact makes the country , as several of the developing nations are attractive to capital-intensive firms from capitalist countries . The stable availability of workers...