Specialization

Specialization allows people and organisations to focus on what they do best, developing skills, experience and dedicated equipment. Adam Smith famously described how dividing the work of making pins into separate tasks dramatically increased output per worker.

At the level of countries, specialization based on comparative advantage allows each to produce what it is relatively most efficient at, then trade, raising total output and living standards.

For example, a country with plentiful farmland might specialize in agriculture, while one with a highly skilled workforce focuses on technology or financial services, and the two trade.

Specialization has risks. A region or country that depends heavily on one industry can be badly hurt if demand for that product falls, prices drop or the industry declines. Highly specialized workers may also struggle to move into new jobs if their industry changes. These risks are one reason why economic diversification is often a policy goal.