Question

Prepare a short report of maximum 3 pages comparing UAE country with Oman:

The theories of absolute and comparative advantage contribute to the explanation of the international trade process. Bearing this in mind, below are some of the examples of products through which the implementation of absolute and comparative advantage between Oman and UAE can be implemented:

1)    Cars

2)    Petroleum

3)    Computers

4)    Pharmaceuticals

5)    Gold

- Discuss the likelihood that UAE country would enjoy an absolute advantage, a comparative advantage, or no particular advantage of each of the products.         

- Conduct your own research to see whether the UAE country is trading any of the above products with Oman. Provide details of what you find out. Sources of reference should be cited to back up your research findings.

Answer 1

There is a high likelihood that the UAE country would enjoy comparative advantage in petroleum as it would be producing more oil than Oman. No particular advantage in terms of cars, computers and pharmaceuticals. Whereas it could have an absolute advantage in gold as it is a trading hub for gold ornaments because of low duty.

UAE does trade in cars (transportation), petroleum - fuel, computers-consumer goods, pharmaceuticals- chemicals and gold - metals.

Now in terms of cars UAE does not have a comparative advantage as it imports more than it exports. It imports USD 732mn, while it exports just USD 637mn.

In petroleum, it has an absolute advantage as it exports USD worth of 229mn, while it imports just USD 83mn from Oman.

Computers UAE also has an absolute advantage as it exports USD 4594mn worth of goods, while importing just USD 881mn from Oman.

Pharmaceuticals also UAE has an advantage, exporting USD 1026mn worth of goods and importing just USD 82mn.

In terms of gold, UAE has a comparative advantage as it exports USD 2142mn while importing USD 1024mn.

Source: Trading economics, World Integrated trade solutions.