IDEAS home Printed from https://ideas.repec.org/a/wea/worler/v2013y2013i2p83.html
   My bibliography  Save this article

Deconstructing the Theory of Comparative Advantage

Author

Listed:
  • Reinhard Schumacher

Abstract

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 »

Suggested Citation

  • Reinhard Schumacher, 2013. "Deconstructing the Theory of Comparative Advantage," World Economic Review, World Economics Association, vol. 2013(2), pages 1-83, February.
  • Handle: RePEc:wea:worler:v:2013:y:2013:i:2:p:83
    as

    Download full text from publisher

    File URL: http://wer.worldeconomicsassociation.org/papers/deconstructing-the-theory-of-comparative-advantage/
    Download Restriction: no

    File URL: http://wer.worldeconomicsassociation.org/files/WEA-WER2-Schumacher.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. 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.
    2. Turan Subasat, 2003. "What Does the Heckscher-Ohlin Model Contribute to International Trade Theory? A Critical Assessment," Review of Radical Political Economics, Union for Radical Political Economics, vol. 35(2), pages 148-165, June.
    3. Robinson, Joan, 1977. "What Are the Questions?," Journal of Economic Literature, American Economic Association, vol. 15(4), pages 1318-1339, December.
    4. Rune Skarstein, 2007. "Free Trade: A Dead End for Underdeveloped Economies," Review of Political Economy, Taylor & Francis Journals, vol. 19(3), pages 347-367.
    5. 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.
    6. Fagerberg, Jan, 1996. "Technology and Competitiveness," Oxford Review of Economic Policy, Oxford University Press, vol. 12(3), pages 39-51, Autumn.
    7. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, January.
    8. 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.
    9. Anwar Shaikh & Rania Antonopoulos, 1998. "Explaining long term exchange rate behavior in the United States and Japan," Macroeconomics 9809011, EconWPA.
    10. 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.
    11. 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, March.
    12. 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.
    13. 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.
    14. Lant Pritchett, 1997. "Divergence, Big Time," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 3-17, Summer.
    15. Morgenstern, Oskar, 1972. "Thirteen Critical Points in Contemporary Economic Theory: An Interpretation," Journal of Economic Literature, American Economic Association, vol. 10(4), pages 1163-1189, December.
    16. 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.
    17. MacDonald, Glenn M & Markusen, James R, 1985. "A Rehabilitation of Absolute Advantage," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 277-297, April.
    18. 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.
    19. Frey, Bruno S, et al, 1984. "Consensus and Dissension among Economists: An Empirical Inquiry," American Economic Review, American Economic Association, vol. 74(5), pages 986-994, December.
    20. Sean Turnell, 2001. "The Right to Employment: Extending the Core Labour Standards and Trade Debate," Research Papers 0101, Macquarie University, Department of Economics.
    21. Jesus Felipe & Matias Vernengo, 2002. "Demystifying the Principles of Comparative Advantage : Implications for Developing Countries," International Journal of Political Economy, Taylor & Francis Journals, vol. 32(4), pages 49-75.
    22. 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 203-209, May.
    23. 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.
    24. 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.
    25. Przemyslaw Kowalski, 2011. "Comparative Advantage and Trade Performance: Policy Implications," OECD Trade Policy Papers 121, OECD Publishing.
    26. Brewer, Anthony, 1985. "Trade with fixed real wages and mobile capital," Journal of International Economics, Elsevier, vol. 18(1-2), pages 177-186, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jorge Morales Meoqui, 2017. "Ricardo's Numerical Example Versus Ricardian Trade Model: a Comparison of Two Distinct Notions of Comparative Advantage," Economic Thought, World Economics Association, vol. 6(1), pages 35-55, March.
    2. Mario Seccareccia, 2014. "Were the original Canada–US Free Trade Agreement (CUSFTA) and the North American Free Trade Agreement (NAFTA) significant policy turning points? Understanding the evolution of macroeconomic policy f," Review of Keynesian Economics, Edward Elgar Publishing, vol. 2(4), pages 414-428, October.
    3. Carmen Elena Dorobat, 2015. "A brief history of international trade thought: From pre-doctrinal contributions to the 21st century heterodox international economics," The Journal of Philosophical Economics, Bucharest Academy of Economic Studies, The Journal of Philosophical Economics, vol. 8(2), May.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. 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). General contact details of provider: http://edirc.repec.org/data/worecea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.