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Ricardo's Theory of Comparative Advantage: Old Idea, New Evidence

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  • Donaldson, Dave
  • Costinot, Arnaud

Abstract

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.

Suggested Citation

  • Donaldson, Dave & Costinot, Arnaud, 2012. "Ricardo's Theory of Comparative Advantage: Old Idea, New Evidence," CEPR Discussion Papers 8930, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8930
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    References listed on IDEAS

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    1. Nathan Nunn & Nancy Qian, 2011. "The Potato's Contribution to Population and Urbanization: Evidence From A Historical Experiment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(2), pages 593-650.
    2. Arnaud Costinot, 2009. "An Elementary Theory of Comparative Advantage," Econometrica, Econometric Society, vol. 77(4), pages 1165-1192, July.
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    More about this item

    Keywords

    Comparative advantage; Ricardian theory;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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