How Trade Boosts Economic Growth Trade is the key to prosperity. Economists have long known trade increases wealth. In fact, trade creates wealth within nations and among nations. That is because trade encourages localities, provinces, and nations to specialize in those goods they can produce relatively efficiently, for which they have a comparative advantage. A country's comparative advantage lies in its work force, in its natural endowments, in its culture, and in its local knowledge.
All countries have a comparative advantage in some products.
Countries where Countries where labor is cheap tend to concentrate on industries which employ many people. Countries where labor is expensive tend to concentrate on production which requires investments in labor-saving technology. When nations trade, they tend to buy products from overseas which are relatively difficult and expensive for them to produce at home and to sell products to other countries which are relatively cheap and easy for them to produce. This two-way trade lowers costs and increases production, employment, incomes, and welfare in both countries. Trade never benefits only one country at the expense of the other.