The Factor Endowment

According to the classical theory of international trade, countries specialise in producing those goods in which they have a comparative advantage over their competitors, and then obtain their other commodity requirements by exchanging domestically produced goods for imports which they are not able to produce economically themselves. Historically the trade of the countries of the Middle East has tended to conform to this pattern, although, increasingly, government regulation of economic affairs has meant that the trade flows predicted by classical laissez-faire models have tended to be distorted. A country’s comparative advantage in the production of a particular commodity is of course determined by what is usually referred to as its ‘factor endowment’, or in other words, the local availability of resources such as labour, agricultural land, mineral resources, capital or technology. Thus, for example, Egypt which has abundant cheap labour, and a good supply of fertile irrigated land, has specialised in cotton production for which its climate is well suited, and for over a century has traded cotton exports for imports of manufactured goods.1 Similarly, for hundreds of years Iran has specialised in carpet production, with the skilled weavers of Tabriz and Isfahan using local wool from the mountains. Neighbouring Iraq has specialised in dates,while in North Yemen the main export has been coffee.