QN: To what extent does the theory of comparative advantage explain the rise of the Indian software industry?

Definition: In the law of comparative advantage, a country should specialize in the production of goods and/or services in which it has a comparative advantage. Based on the article: Despite having poor information technology infrastructure, India has a comparative advantage in the software industry due to the following factors: 1) Education: a. Its middle class is highly educated and its top educational institutions are world class 2) Country a. There is emphasis on engineering in the country 3) Language a. English is the working language throughout most of the middle-class Indians, giving them the competitive edge to be able to communicate with foreign countries 4) Low wage rate a. Wage rate for entry-level programmers are very low in terms of international standards 5) Productivity level a. Though there is an increase in wage rate, there is also an increase in productivity concurrently 6) Advanced technology a. Satellite has removed distance as an obstacle in doing business for India, allowing for instant communications. This is greatly benefited India’s software industry since software need not be transported physically to be exported. 7) Geographical position a. India is in a geographical position that has a time zone advantage that results in faster communication with other countries in terms of time. Though other developed countries may also be efficient in the software industry, India has an edge over them mainly due to the above factors. With all these factors, India is able to make better use of its resources to obtain higher efficiency and productivity. This has led to their ability to export their software and increase the exports from less than $10 million in 1985 to $1.1 billion in 1996-97.

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