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Putting Ricardo to Work

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  • Jonathan Eaton
  • Samuel Kortum

Abstract

David Ricardo (1817) provided a mathematical example showing that countries could gain from trade by exploiting innate differences in their ability to make different goods. In the basic Ricardian example, two countries do better by specializing in different goods and exchanging them for each other, even when one country is better at making both. This example typically gets presented in the first or second chapter of a text on international trade, and sometimes appears even in a principles text. But having served its pedagogical purpose, the model is rarely heard from again. The Ricardian model became something like a family heirloom, brought down from the attic to show a new generation of students, and then put back. Nearly two centuries later, however, the Ricardian framework has experienced a revival. Much work in international trade during the last decade has returned to the assumption that countries gain from trade because they have access to different technologies. These technologies may be generally available to producers in a country, as in the Ricardian model of trade, our topic here, or exclusive to individual firms. This line of thought has brought Ricardo's theory of comparative advantage back to center stage. Our goal is to make this new old trade theory accessible and to put it to work on some current issues in the international economy.

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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 26 (2012)
Issue (Month): 2 (Spring)
Pages: 65-90

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Handle: RePEc:aea:jecper:v:26:y:2012:i:2:p:65-90

Note: DOI: 10.1257/jep.26.2.65
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Cited by:
  1. Kakarot-Handtke, Egmont, 2011. "Trade, productivity, income, and profit: the comparative advantage of structural axiomatic analysis," MPRA Paper 43872, University Library of Munich, Germany, revised 18 Jan 2012.
  2. Lorenzo Caliendo & Fernando Parro, 2012. "Estimates of the Trade and Welfare Effects of NAFTA," NBER Working Papers 18508, National Bureau of Economic Research, Inc.
  3. NAITO Takumi, 2012. "An Eaton-Kortum Model of Trade and Growth," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 12055, Research Institute of Economy, Trade and Industry (RIETI).
  4. Keith Head & Thierry Mayer, 2013. "What separates us? Sources of resistance to globalization," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 46(4), pages 1196-1231, November.
  5. Juyoung Cheong & Shino Takayama, 2014. "The Trade And Welfare Analysis Of The TPP," Discussion Papers Series 509, School of Economics, University of Queensland, Australia.
  6. Lendle, Andreas & Olarreaga, Marcelo & Schropp, Simon & Vézina, Pierre-Louis, 2012. "There goes gravity: how eBay reduces trade costs," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9094, C.E.P.R. Discussion Papers.
  7. Pierre-Louis Vezina & David von Below, 2013. "The Trade Consequences of Pricey Oil," Economics Series Working Papers OxCarre Research Paper 11, University of Oxford, Department of Economics.
  8. Henry Thompson, 2013. "Regional Trade in a Purely Competitive Model," Auburn Economics Working Paper Series, Department of Economics, Auburn University auwp2013-15, Department of Economics, Auburn University.
  9. Kwok Tong Soo, 2013. "Intra-industry trade," Working Papers 33867578, Lancaster University Management School, Economics Department.
  10. Lorenzo Caliendo & Fernando Parro & Esteban Rossi-Hansberg & Pierre-Daniel Sarte, 2014. "The Impact of Regional and Sectoral Productivity Changes on the U.S. Economy," NBER Working Papers 20168, National Bureau of Economic Research, Inc.
  11. Mauro Lanati, 2013. "Estimating the elasticity of trade: the trade share approach," LEM Papers Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy 2013/10, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  12. Mauro Lanati, 2013. "Estimating the elasticity of trade: the trade share approach," Discussion Papers 2013/159, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.

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