Dubious assumptions of the theory of comparative advantage

Published on the RWER Blog, by Ian Flechter [U.S Business and Industry Council, USA], December 17, 2010.

Review of the theory:

To understand comparative advantage, it is best to start with its simpler cousin absolute advantage. The concept of absolute advantage simply says that if some foreign nation is a more efficient producer of some product than we are, then free trade will cause us to import that product from them, and that this is good for both nations. It is good for us because we get the product for less money than it would have cost us to make it ourselves. It is good for the foreign nation because it gets a market for its goods. And it is good for the world economy as a whole because it causes production to come from the most efficient producer, maximizing world output … (full text).

The whole of this paper may be downloaded at rwer no. 54, 12 pdf-pages.


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