International division of labor

economic-dictionary

The international division of labor is that the different countries of the world specialize in the production of certain goods and services in order to take advantage of their comparative advantages.

The international division of labor is similar to the division of labor that occurs in a company or country, but carried out internationally. Thus, just as some workers specialize in carrying out certain tasks or areas of study, internationally it is also observed that countries tend to specialize in certain industries or productive activities. Thus, for example, in the United Kingdom there is a specialization in the area of ​​financial services while in Brazil there is a specialization in the production of chicken meat or coffee.

The international division of labor is also related to the concept of global value chains where companies carry out different stages of their production chain in different parts of the world.

Origin of the international division of labor

The international division of labor would have its origin in taking advantage of the relative advantages that each country has. Indeed, given that countries have different resources and productive capacities, they will have some relative advantage in the production of some product or service compared to another country, either in costs or in quality.

The origin of the economic theory that supports the concept of international division of labor is found in the ideas of Adam Smith (division of labor in the company), David Ricardo (comparative costs in international trade) and John Stuart Mill (comparative advantages) .

Benefits of the international division of labor

Among the benefits of the international division of labor are:

  • A more efficient use of resources since each country takes advantage of its resources and potential in the tasks that are best for it
  • A reduction in costs through two means: taking advantage of comparative advantages and taking advantage of economies of scale
  • The productive development of the countries is promoted through commercial exchange

Criticisms of the international division of labor

Some economists have criticized the effects of the international division of labor, claiming that it has only fostered inequality and poverty in commodity-producing countries.

Indeed, in the 1970s-1980s, economists Raúl Prebisch and Celso Hurtado, who belonged to the United Nations (UN) Economic Commission for Latin America and the Caribbean, affirmed that the international division of labor led to to a division of the world into two groups: one producer of industrialized goods and the other, producer of raw materials. The first group benefited from the increase in the relative prices of their products, while the second group was losing purchasing power due to the progressive loss of value of their products.

This phenomenon in which industrial goods appreciated while raw materials reduced their relative value was called the deterioration of the terms of trade. This would have as a consequence an increase in inequality and a greater dependence of the most affected countries on the richest.

Evolution of the international division of labor

The traditional and critical view of the international division of labor was that countries specialized in raw materials or industrialized goods.

However, with the advancement of technologies and global interconnection, this division is moving away from reality. Today, transnational companies are interested in producing industrial goods in less developed countries since it is more convenient for them due to its lower wage costs, lower taxes or other advantages.

In this way, the countries that were previously mere producers of raw materials now manufacture industrialized goods while the more advanced countries concentrate on the development of advanced technology, specialized services and on making their capital profitable through national and international investments.

Dependency theory

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