What is international specialisation?
International specialisation is when countries concentrate on producing the goods and services they can make most efficiently, then trade for the rest. It is the same principle as the division of labour, applied between nations. Specialisation is closely linked to free trade, because countries must be able to exchange their surplus output to gain from it.
Key idea
A country tends to specialise where it has an advantage, such as suitable climate, natural resources, skilled labour or advanced technology, and imports goods that others make more efficiently.
Benefits
Specialisation and trade raise world output. Producing on a large scale allows economies of scale, lowering average costs and prices. Consumers enjoy a wider choice of goods, and countries can obtain products they cannot make themselves. Overall, living standards can rise as resources are used more efficiently.
Example
A country with a warm climate specialises in coffee, which it exports, and imports machinery from a country with advanced industry. Both gain access to goods at lower cost than producing everything alone.
Risks of specialisation
Over-specialisation is risky. If a country relies on one product, a fall in its world price or demand can badly damage the economy. Depending on imports can create problems if supplies are cut. Resources such as a mineral may run out, and industries elsewhere may out-compete domestic firms, causing structural unemployment.
Remember
- Specialise where you are most efficient, then trade.
- Benefits: higher output, economies of scale, more choice.
- Risk: over-reliance on one product or supplier.