Nations gain by producing goods at relatively low costs and exchanging their outputs for different goods produced by others at relatively low cost. Thus, consumers can gain enormously through appropriate specialization and exchange. A country has an absolute advantage in producing a good if production of the good absorbs fewer resources than are required in other countries or by other individuals or firms.
Specialization leads to economies of scale (Globalization) where more units of a good or a service can be produced on a larger scale, yet with (on average) less input costs. An increasingly competitive global economy drives companies to gain larger global market shares so that they can exploit the benefits of economies of scale (Daniels, Radebaugh, and Sullivan, 2007).
Of course, a harmonious political climate and international embracement of free trade are foundations which allow international trade to flourish (Daniels, Radebaugh, and Sullivan, 2007). This condition is clearly evidenced by the success of the World Trade Organization (WTO), an organization for liberalizing and supervising free trade. Today, the WTO has 153 members, representing more than 95% of total world trade (Fergusson, 2007). Cross-national cooperation is seen as in the best interest of its members who want to retain reciprocal advantages, to attack problems jointly that one country acting alone cannot solve, and to deal with areas of concern that lie outside the territory of any nation (Daniels, Radebaugh, and Sullivan, 2007).
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