Comparative advantage, the idea put forward by economist David Ricardo in the early 19th Century, suggests each country should make what they are most efficient at. If all countries do this and trade with each other, it maximises welfare for everyone. This theory is the cornerstone argument for globalisation. Some countries have climates most suited to growing certain foods, an abundance of natural resources or a culture geared towards producing a specific good or service.
For the past 30 years, Taiwan has focused on producing semiconductors, with the help of government subsidies. Students are taught electrical engineering as early as high school and the industry is a source of national pride. Last year, semiconductors accounted for up to 20 per cent of Taiwan’s total GDP. As a similarly small island, the UK has also pursued a specialisation strategy, with 12 per cent of GDP coming from financial services.
For Taiwan, this made sense. It has few natural resources and imports almost all its oil. It needed to find a comparative advantage and chose one that was culture-based and could be developed regardless of geographical restrictions, much like the UK.