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

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  • Arnaud Costinot
  • Dave Donaldson

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

  • Arnaud Costinot & Dave Donaldson, 2012. "Ricardo's Theory of Comparative Advantage: Old Idea, New Evidence," NBER Working Papers 17969, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17969
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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, Oxford University Press, 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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    1. [経済]古き予言はまことであった
      by himaginary in himaginaryの日記 on 2012-06-23 12:00:00

    Citations

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    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. Cecilia Bellora & Jean-Marc Bourgeon, 2016. "Food trade, Biodiversity Effects and Price Volatility," Working Papers 2016-06, CEPII research center.
    3. Cecilia Bellora & Jean-Marc Bourgeon, 2014. "Agricultural Trade, Biodiversity Effects and Food Price Volatility," Working Papers hal-00969083, HAL.
    4. repec:bla:kyklos:v:70:y:2017:i:3:p:425-455 is not listed on IDEAS
    5. repec:oup:erevae:v:44:y:2017:i:4:p:592-633. is not listed on IDEAS
    6. Asier Minondo, 2016. "Fundamental comparative advantage versus random talent: An analysis using chess data," Working Papers 1605, Department of Applied Economics II, Universidad de Valencia.
    7. Laurent Frésard & Ulrich Hege & Gordon Phillips, 2017. "Extending Industry Specialization through Cross-Border Acquisitions," Review of Financial Studies, Society for Financial Studies, vol. 30(5), pages 1539-1582.
    8. repec:aea:aejmic:v:9:y:2017:i:3:p:28-62 is not listed on IDEAS
    9. Helen Scharber & Anita Dancs, 2016. "Do locavores have a dilemma? Economic discourse and the local food critique," Agriculture and Human Values, Springer;The Agriculture, Food, & Human Values Society (AFHVS), vol. 33(1), pages 121-133, March.
    10. Diego Restuccia & Tasso Adamopoulos, 2017. "Geography and Agricultural Productivity: Cross-Country Evidence from Micro Plot-Level Data," 2017 Meeting Papers 1180, Society for Economic Dynamics.
    11. Hausmann, Ricardo & Hidalgo, Cesar A. & Stock, Daniel P. & Yildirim, Muhammed A., 2014. "Implied Comparative Advantage," Working Paper Series rwp14-003, Harvard University, John F. Kennedy School of Government.

    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns

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