Comparative Advantage in Trade in Manufactures

The role of exports in the process of economic development of an economy, be it developed or underdeveloped, has long been recognised in the economic literature. Exports allow an economy to take advantage of the international division of labour, induce lower unit cost through larger-scale production, promote managerial and technological innovations, encourage the inflow of foreign capital and, above all, generate greater employment opportunities. Adam Smith’s well-quoted dictum: ‘That the division of labour is limited by the extent of the market’ (Smith, 1937) points to the importance of trade as a stimulus to domestic output expansion based on economies of scale.