Question

Italy produces some of the world’s best wine. In fact, there are a number of other countries that produce exquisite wines including France, Spain, Argentina, the United States, and Australia. Could we argue that Italy has comparative advantage in the production of wine? If so, briefly discuss the different factors that might explain why Italy has comparative advantage in the production of wine.

Answer 1

What is Comparative Advantage? -

In economics, comparative advantage stands for a country/company's ability to produce certain goods and services at a relatively lower opportunity cost than other countries/companies/trade partners. Comparative advantage allows a country/company to realize stronger sales margins as compared with its competitors.

Italy and Wine Production -

Italy is the second largest producer and consumer of wine after France. It is also the second largest exporter of wine (in terms of value in $) after France (source - https://atlas.media.mit.edu/en/profile/hs92/2204/). Italy has also witnessed the internationalization of its wine industry, as many foreign-based companies acquired or formed joint ventures with Italian wineries.

Factors for Italy's Comparative Advantage in Wine Production -

• Desired climate for grape cultivation (Mediterranean Climate)
• Progressively opening itself to foreign countries, not only in the traditional consumer markets but also in the emerging ones, thanks to its ability to satisfy a diversified demand more and more oriented towards quality products
• Strong bilateral ties for wine export
• High degree of appreciation for Italian wine with respect to the agri-food industry as a whole
• Knowledge and skills of workmen along with devoted work ethics
• Market access due to membership of the European Union