How does diversification match up with specialization

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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How does diversification match up with specialization

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Meaning of Specialization:

The comparative advantage under specialization is because it is vital to consider the assembly of more goods as compared to economic stability. Thus trade according to specialization or comparative advantage as it is necessary to realize gains from trade.

The important comparison with diversification is that diversified economies are less vulnerable to economic shocks then specialized economies. In practice, the policymakers in developing countries have an interest in diversifying their production and export structure to scale back vulnerability to external shocks.

Thus more diversified economies are less volatile in terms of output and lower output volatility is associated with higher economic growth.

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