theory of comparative advantage
9847104
Ricardo&Apos;S Theory of Comparative Advantage: Old Idea, New Evidence
When asked to name one proposition in the social sciences that is both true and non trivial, Paul Samuelson famously replied: 'Ricardo's theory of comparative advantage' Truth, however, in Samuelson's reply refers to the fact that Ricardo's theory of comparative advantage is mathematically correct, not that it is empirically valid. The goal of this paper is to assess the empirical performance of Ricardo's ideas. We use novel agricultural data that describe the productivity in 17 crops of 1.6 million parcels of land in 55 countries around the world. Crucially, this dataset contains information about the productivity of each parcel of land in all crops, not just those that are currently being grown. This direct information about relative productivity differences across economic activities allows us to compute, for the first time, the output predicted by Ricardo's theory of comparative advantage. Despite all of the real world considerations from which this theory abstracts, we find that Ricardo's theory of comparative advantage has significant explanatory power in the data, at least within the scope of our analysis.
Arnaud Costinot David J Donaldson
154492786
Deconstructing the Theory of Comparative Advantage
This article critically examines the theory of comparative advantage, which underlies the wide spread support of worldwide trade liberalisations. Both the classical and neoclassical formulations of it are shortly discussed and its essential assumptions are scrutinised. These include the international immobility of capital and labour, balanced trade, the existence of an adjustment mechanism which is responsible for the transformation of comparative production advantages into absolute price advantages, full employment and the perception of international trade as a static and harmonious phenomenon. It is shown that all these assumptions are neither theoretical valid nor do they coincide with empirical research. The whole rationale why international trade exists according this theory is deficient. The New Trade Theory, which claims to enhance the theory of comparative advantage, is unconvincing as a complement. It is concluded that the theory of comparative advantage should be dismissed. International trade theory, by relying on this theory, risks ignoring the most relevant and important elements with regard to international trade. The deficiencies of the theory of comparative advantage are especially crucial for trade policies that are derived from this theory, which is discussed with reference to the WTO and its ongoing Doha Round.
Reinhard Schumacher
8590967
An Elementary Theory of Comparative Advantage
Comparative advantage, whether driven by technology or factor endowment, is at the core of neoclassical trade theory. Using tools from the mathematics of complementarity, this paper offers a simple, yet unifying perspective on the fundamental forces that shape comparative advantage. The main results characterize sufficient conditions on factor productivity and factor supply to predict patterns of international specialization in a multi factor generalization of the Ricardian model to which we refer as an "elementary neoclassical economy." These conditions, which hold for an arbitrarily large number of countries, goods, and factors, generalize and extend many results from the previous trade literature. They also offer new insights about the joint effects of technology and factor endowments on international specialization.
Arnaud Costinot
202763682
The Theory of Comparative Advantage
155081082
Pollution, welfare, and environmental policy in the theory of Comparative Advantage
Abstract Within a simple two sector general equilibrium model it is shown how some well known propositions of the neoclassical trade theory can be applied to countries with pollution generating industries. Results are obtained not only under the assumption that the countries do not enforce any environmental policy but also for the case that one or each country implements an environmental price and standard system. In particular, several versions of the Theorem of Comparative Advantage with respect to environmental scarcity are derived, a theorem on welfare losses from trade, and an emission charge equalization theorem.
Rudiger Pethig
154710743
UNEQUAL EXCHANGE AND ECONOMIC POLICIES: SOME IMPLICATIONS OF THE NEO RICARDIAN CRITIQUE OF THE THEORY OF COMPARATIVE ADVANTAGE
It is the purpose of this paper to show that the recent upsurge of critiques of the standard theory of comparative advant ae (as expressedl in tize classicail Ricardian forms and in the highly refined neo classical form) have far reaching consequenices, not ontly theoretically1, but in the implications of the theories for policy and acftion in the concrete wvorld. This pap)er (leals only uwith what might be termed the nen Ricar dian critiques of the theory of comparative advantage wchich have their nmain strength in providing a sharp critique of both the Ricardian and neo classical views. It is not intended to suiggest here that, as a consequence of the neoRicardian critique, all previous emrpip'ical and policy oriented research hasbeen misleading. Rather the intention is to raise some new questions which uirgently requirc answers. MNuiich theoretical anid empirical work renains to be done to develop a fuill fledged neo Ricardian view.
David Evans
17377670
A Direct Test of the Theory of Comparative Advantage: The Case of Japan
We exploit Japan's sudden and complete opening up to international trade in the 1860s to test the empirical validity of one of the oldest and most fundamental propositions in economics: the theory of comparative advantage. Historical evidence supports the assertion that the characteristics of the Japanese economy at the time were compatible with the key assumptions of the neoclassical trade model. Using detailed product specific data on autarky prices and trade flows, we find that the autarky price value of Japan's trade is negative for each year of the period 1868 75. This confirms the prediction of the theory.
Journal of Political Economy
Daniel M Bernhofen John C Brown
19184801
Classical Ricardian Theory of Comparative Advantage Revisited
According to the classical Ricardian theory of comparative advantage, relative labor productivities determine trade patterns. The Ricardian model plays an important pedagogical role in international economics, but has received scant empirical attention since the 1960s. This paper assesses the contemporary relevance of the Ricardian model for US trade. Cross section seemingly unrelated regressions of sectoral trade flows on relative labor productivity and unit labor costs are run for a number of countries vis a vis the United States. The coefficients are almost always correctly signed and statistically significant, although much of the sectoral variation of trade remains unexplained. Copyright 2000 by Blackwell Publishing Ltd.
Stephen S Golub Chang-tai Hsieh
154800703
Human Services and the Voluntary Sector: Towards a Theory of Comparative Advantage
This article explores whether human service organisations in the voluntary sector possess characteristics which might assure them of possible comparative advantages over the for profit and public sectors with respect to certain sorts of users. We argue that there are inherent structural characteristics of organisations in each sector (for example, ownership, stakeholders and resources) which predispose them to respond more or less sensitively to different states of 'disadvantage' experienced by their users. These states are defined as financial, personal, societal and community disadvantage. We suggest that voluntary organisations have a comparative advantage over other sector agencies in areas where their distinctive ambiguous and hybrid structures enable them to overcome problems of principal agent gap, median voter reluctance, weak messages from politicians to staff and lack of market interest. By taking ideas of comparative advantage into account, a coherent case can be developed regarding the strengths and weaknesses of the expanded role of voluntary agencies in welfare provision. In essence, the article contends that a diminution in stakeholder ambiguity, resulting from organisational growth, lowers the comparative advantage of voluntary agencies.
David Billis Howard Glennerster
153325319
Reassessing the Theory of Comparative Advantage
This paper is a reassessment of the theory of comparative advantage and the policy of laissez faire that has generally been built upon it. The method of analysis will be conceptual as the intent is to examine some of the more problematic assumptions and sometimes implicit preconceptions that underlie the model. In particular, it will be demonstrated that what often passes for a consistent and rigorous defence of free trade is neither. The paper ends with a plea for the re introduction of a more historical and comparative approach to the trade policy debate.
Robert E Prasch