Other developed nations enjoy similar endowments in different proportions. Third-world developing nations enjoy large amounts of unskilled labor, and usually land. Modern trade theory predicts that countries will specialize in the production of goods that use their specific factor proportions most efficiently and import goods that are created with factors they do not have. For example, a developing nation with a lot of unskilled labor will specialize in making goods that use unskilled labor for production. These goods are known as labor-intensive goods.
Free trade is based upon competition.
Countries with similar factor endowments will compete with each other to produce and supply goods. To gain an advantage over other competing countries, prices must be lowered and consequently costs of production must be lowered. This drive to seek out the lowest costs has led producers of labor-intensive goods to seek out the cheapest form of labor possible. That has led them to using child labor and sweatshop labor. Our web page explores the issue of child labor and sweatshops.