1. Why is India losing its comparative advantage in business service processing to China?

Indian workers' wages are rising, making them less competitive than Chinese workers. Chinese workers are becoming better at handling these services more cheaply, but not yet more efficiently.

2. Could China someday lose the comparative advantage that it is gaining right now in this industry? Why or why not?

Yes, if the wages of Chinese workers were to begin increasing relative to some other low-wage labor pool.

3. Would it ever make economic sense for a firm to keep production in a high-wage country instead of moving production to a low-wage country?

Yes, if the high-wage labor pool was sufficiently more productive that it earned the wage differential.

©2006  South-Western.  All Rights Reserved   webmaster  |   DISCLAIMER