What Is the Role of Comparative Advantage in Trade?

In his representative work, Principles of Political Economy and Taxation, David Ricardo put forward the theory of comparative cost trade (hereinafter referred to as the "comparative advantage trade theory"). The theory of comparative advantage holds that the basis of international trade is the relative difference (not absolute difference) in production technology, and the relative cost difference. Each country should concentrate on producing and exporting its products with "comparative advantages" and importing its products with "relative disadvantages" in accordance with the principle of "benefiting each other with the right and putting the two disadvantages together with the least." The comparative advantage trade theory explained the basis of trade and trade gains on a more general basis, and greatly developed the absolute advantage trade theory.

Comparative advantage theory

concept

Comparative advantage can be expressed as: the difference in labor productivity between the two countries is not equal in any product. Each country should focus on producing and exporting products with comparative advantages, and importing products with comparative disadvantages (ie, "the two advantages are the most important and the two disadvantages are the least important"). Both sides can save labor and gain professionalism. The benefits of a division of labor and increased labor productivity.

Assumptions

(1) Assume that there are only two countries and two commodities (X and Y commodities) in trade. The purpose of this hypothesis is to illustrate the theory with a two-dimensional plan.

(2) The two countries use different technologies in production. Different technologies result in different labor productivity and thus different costs.

(3) The model only assumes that

Strict theoretical premise

Two countries, two products or two factors; there are certain characteristics differences between countries;

Ricardo's Free Trade Proposition

Improvement and challenge of mainstream theory

The development of comparative advantage theory in recent years is mainly based on the improvement and challenge of the mainstream theory of exogenous comparative advantage. In many studies on comparative advantage in recent years, a prominent phenomenon is that

Similar to the progress of comparative advantage theory itself, the application of comparative advantage theory in developing countries also has different or even opposing views.

Balassa (1981) is based on the new

Ricardo's theory of comparative advantage reveals the basis for a highly abstract international division of labor built from a cosmopolitan perspective under conditions of complete free trade. Ricardo's theory of comparative advantage has become the British industrial bourgeoisie's implementation of free trade policies, forming a British-centered international division of labor pattern, and further the capitalist mode of production has become the world's main mode of production. . Ricardo's theory of comparative advantage embodies the requirements of the British industrial bourgeoisie to increase profits, and reflects the development direction and value role of the market economy in the international arena. But in the formation of a British-centered international division of labor, it was achieved by launching a commercial war, forcing other countries to accept free trade policies, and through colonial rule and fierce competition with low prices and good quality. This pattern of international division of labor makes Britain the center of international division of labor, and other countries become its peripheral countries; the British economy has developed rapidly, while peripheral countries have formed a single one-sided economy. This international division of labor is not, as Ricardo describes, "benefiting people and uniting all nations of the world into a unified society with common bonds of interest and mutual contact." Therefore, as far as Ricardo's theory of comparative advantage and the formation of international division of labor are concerned, the inherent laws of the capitalist mode of production are ignored, with non-historical, supranational, and superclass perspectives, and it embellishes the reality of the international division of labor centered on Britain . However, we cannot deny the "rational core" of international division of labor based on the theory of comparative advantage, complementary advantages, and mutual development through international trade.