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. View the Open Peer Discussion of this paper »
Volume (Year): 2013 (2013)
Issue (Month): 2 (February)
|Contact details of provider:|| Web page: https://www.worldeconomicsassociation.org/|
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Syed Mahmud & Aman Ullah & Eray Yucel, 2004.
"Testing Marshall-Lerner condition: a non-parametric approach,"
Applied Economics Letters,
Taylor & Francis Journals, vol. 11(4), pages 231-236.
- Syed Mahmud & M. Eray Yucel, 2001. "Testing Marshall-Lerner Condition : A Non-Parametric Approach," Working Papers 0102, Department of Economics, Bilkent University.
- Przemyslaw Kowalski, 2011. "Comparative Advantage and Trade Performance: Policy Implications," OECD Trade Policy Papers 121, OECD Publishing.
- Lapavitsas, Costas, 1996. "The Classical Adjustment Mechanism of International Balances: Marx's Critique," Contributions to Political Economy, Oxford University Press, vol. 15(0), pages 63-79.
- Sean Turnell, 2001. "The Right to Employment: Extending the Core Labour Standards and Trade Debate," Research Papers 0101, Macquarie University, Department of Economics.
- Rune Skarstein, 2007. "Free Trade: A Dead End for Underdeveloped Economies," Review of Political Economy, Taylor & Francis Journals, vol. 19(3), pages 347-367.
- Alston, Richard M & Kearl, J R & Vaughan, Michael B, 1992. "Is There a Consensus among Economists in the 1990's?," American Economic Review, American Economic Association, vol. 82(2), pages 203-09, May.
- Brewer, Anthony, 1985. "Trade with fixed real wages and mobile capital," Journal of International Economics, Elsevier, vol. 18(1-2), pages 177-186, February.
- Robinson, Joan, 1977. "What Are the Questions?," Journal of Economic Literature, American Economic Association, vol. 15(4), pages 1318-39, December.
- Pritchett, Lant, 1995.
"Divergence, big time,"
Policy Research Working Paper Series
1522, The World Bank.
- MacDonald, Glenn M & Markusen, James R, 1985. "A Rehabilitation of Absolute Advantage," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 277-97, April.
- Jesus Felipe & Matias Vernengo, 2002. "Demystifying the Principles of Comparative Advantage : Implications for Developing Countries," International Journal of Political Economy, M.E. Sharpe, Inc., vol. 32(4), pages 49-75, January.
- Claudio Sardoni, 1986. "Marx and Keynes on Effective Demand and Unemployment," History of Political Economy, Duke University Press, vol. 18(3), pages 419-441, Fall.
- Milberg, William., 2004. "The changing structure of international trade linked to global production systems : what are the policy implications?," ILO Working Papers 993701203402676, International Labour Organization.
- Krugman, Paul, 1987. "The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher : Notes on trade in the presence of dynamic scale economies," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 41-55, October.
- Rose, Andrew K., 1990. "Exchange rates and the trade balance : Some evidence from developing countries," Economics Letters, Elsevier, vol. 34(3), pages 271-275, November.
- Frey, Bruno S, et al, 1984. "Consensus and Dissension among Economists: An Empirical Inquiry," American Economic Review, American Economic Association, vol. 74(5), pages 986-94, December.
- Anwar M. Shaikh & Rania Antonopoulos, 1998.
"Explaining Long-Term Exchange Rate Behavior in the United States and Japan,"
Economics Working Paper Archive
wp_250, Levy Economics Institute.
- Anwar Shaikh & Rania Antonopoulos, 1998. "Explaining long term exchange rate behavior in the United States and Japan," Macroeconomics 9809011, EconWPA.
- Rose, Andrew K., 1991. "The role of exchange rates in a popular model of international trade : Does the 'Marshall-Lerner' condition hold?," Journal of International Economics, Elsevier, vol. 30(3-4), pages 301-316, May.
- Jan Fagerberg, 1996.
"Technology and Competitiveness,"
Working Papers Archives
1996548, Centre for Technology, Innovation and Culture, University of Oslo.
- Morgenstern, Oskar, 1972. "Thirteen Critical Points in Contemporary Economic Theory: An Interpretation," Journal of Economic Literature, American Economic Association, vol. 10(4), pages 1163-89, December.
- Aldrich, John, 2004. "The Discovery of Comparative Advantage," Journal of the History of Economic Thought, Cambridge University Press, vol. 26(03), pages 379-399, September.
- William MILBERG, 2004. "The changing structure of trade linked to global production systems: What are the policy implications?," International Labour Review, International Labour Organization, vol. 143(1-2), pages 45-90, 03.
- Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, March.
- Hassan Shirvani & Barry Wilbratte, 1997. "The Relationship Between The Real Exchange Rate and The Trade Balance: An Empirical Reassessment," International Economic Journal, Taylor & Francis Journals, vol. 11(1), pages 39-50.
- Roy J. Ruffin, 2002. "David Ricardo's Discovery of Comparative Advantage," History of Political Economy, Duke University Press, vol. 34(4), pages 727-748, Winter.
When requesting a correction, please mention this item's handle: RePEc:wea:worler:v:2013:y:2013:i:2:p:83. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jake McMurchie)
If references are entirely missing, you can add them using this form.