This article attempts to show that Ricardo’s law of comparative costs provides an original and complete model, as opposed to the accounts of neoclassical economists. Ricardo’s approach comprises three parts. The first one shows that the country starts having an interest to participate in international trade when the terms of trade deviate from its internal relative costs. The second part establishes that the process of international trade is regulated by the adjustment of relative nominal wages, expressed in a common unit of account, in order to make exported prices comparable. The third part tries to demonstrate that the exchange rate and international terms of trade are determinate when the balance of payments of the given country realises an equilibrium state. Such mechanism is asserted here as it allows to underline the precarious and instable character of this equilibrium.
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Article provided by Centre national de la recherche scientifique (CNRS), Paris in its journal Cahiers d'économie Politique.
Volume (Year): (2008) Issue (Month): 55 (July - Dec) Pages: 113-140 Download reference. The following formats are available: HTML
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Find related papers by JEL classification: B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith) F10 - International Economics - - Trade - - - General