Fed Faced With a Long-Term Term Paper

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3. The country that I have chosen is South Africa. Absolute advantage is a situation when a country has an advantage in producing an item; comparative advantage reflects a situation when a country does not have absolute advantage but on the balance of trade should produce that good anyway. Compared with the United States, South Africa has absolute advantages in some mineral production, but mainly in the cost of labor. A combination of high levels of unemployment and a weak rand (9.05 to the USD) make South Africa's labor costs substantially lower -- even educated, middle class South Africans earn less than their American counterparts. South Africa has a comparative advantage in some manufacturing and service industries, however. It might not be cheaper than some Asian nations, but it has good technological and managerial capabilities that could give it comparative advantage in a number of light manufacturing and resources industries.

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The choices available to South Africa are bound to some extent by its geography, as it is far from major markets. It leverages absolute competitive advantage in technology and management in the African region, but struggles to use its comparative advantages to expand trade beyond that region. South Africa therefore relies on strong global markets to become involved in the global trading system. The country's economic weakness is largely because it relies only on its absolute comparative advantages in Africa and in the global resources sector; it does little to leverage its comparative advantages. As a consequence of its distance from major markets, South Africa produces much of its own consumer goods. While not as cheap as other producers, it should be able to combine its comparative advantages in manufacturing and management to make a greater impact on the global economic scene.

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