Reviewed by Jan 29, 2021| Updated on
Several countries may specialise in producing the goods and services which are fundamental to their part of the world, and they sell them for other goods and services. This specialisation is, therefore, the basis of global trade; as only some countries have sufficient production capacity to completely self-sustain.
The specialisation can enhance productivity and provide a relative advantage for an entity or economy. The specialisation is an arrangement within a community, organisation, or a larger group where each of the members suitable for a specific activity takes responsibility for its successful execution.
The specialisation can occur both at the microeconomic level and the macroeconomic levels.
1. Microeconomic Specialisation
At the individual level, specialisation generally comes in the form of career or labour specialisation. Every member of an economy or an organisation, for instance, has a unique set of abilities, skills, talents, and interests that make them uniquely capable of performing a set of duties.
Labour specialisation utilises these unique skills and places people in domains where they do the best, serving both the individual and the economy. If a single individual excels at maths but is not a skilled writer, it is an advantage to both the individual and the community to pursue a field that heavily requires mathematics.
2. Macroeconomic Specialisation
Economies that recognise specialisation have a relative advantage in the production of a good or service. Relative advantage is the ability to produce a good or service at a lower marginal and opportunity cost compared to another good or service.
An economy can benefit from international trade if it specialises in production. If a country can produce coffee at a lower cost than tea, it can choose to specialise and assign all its resources for the production of coffee, using some of them to trade for tea.
Structural analysis of India’s foreign trade policy shows evidence that India’s position in international trade is based on its specialisation in labour-intensive traditional industries.
It is further characterised by a slow-growing international demand and protected markets. It also points out towards the large differences in trade specialisation between India and other Asian countries. These are due to India’s manufacturing industry that has remained on the interests of the globalisation process.
But India has developed strengths in service sector exports. The geographical location of India is also important.