Abstract
In the Ricardian trade model, even a country with no absolute advantage in the production of any commodity can gain from international trade, specializing in the production of the good in which it is has a comparative advantage. A three-country, three-commodity setting with given numbers for each country’s labor requirement is used to illustrate possible patterns of trade. More recent trade models, such as the Swedish contribution by Heckscher and Ohlin, enriched the basic form of the Ricardian model by allowing more factors of production and differences in the endowments between countries and capital/labor ratios between commodities. However, the basic importance of the power of comparative advantage as the key to possible international trade patterns is maintained. The Ricardian model, with its basic simplicities, remains a popular set of explanations for fundamental features of international trade.
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Notes
- 1.
10/7 is the price of corn in Britain expressed not in units of labor but in units of linen if Britain were to produce both commodities. 10/5 would be the price of corn in units of linen in America if it were to produce both commodities.
- 2.
As noted in the previous footnote the argument that supports comparative advantage as the significant feature of the Ricardian Model in higher dimensions is explained in Jones (1961).
- 3.
- 4.
Heckscher’s paper was not translated into English until 1949.
- 5.
Ricardo, of course, was aware that in reality labor was not the only factor of production. He even used a four-letter word when talking of the price of another productive factor—rent. (See, for example, the second chapter of his 200-year old book.)
- 6.
Some economists later allowed differences in technology in the Heckscher-Ohlin model as well as differences in factor endowments.
- 7.
The paper had earlier been rejected by the American Economic Review. A 50th anniversary celebration led to a book entitled, The Stolper-Samuelson Theorem. Stolper was my first undergraduate professor (at Swarthmore College), with our textbook the new first edition of Samuelson’s text, and Samuelson was my professor for graduate work at M.I.T. This past history urged me to suggest to Alan Deardorff (at the University of Michigan along with Stolper) to have a 50th anniversary celebration there, especially since Alan was a student of mine when I taught a graduate trade course at Cornell.
- 8.
This presumes that there is no joint production. That is, every productive activity requires two inputs to produce a single output. This assumption was so commonly made that often little notice was paid to its importance in affecting factor prices.
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Jones, R.W. (2017). The Main Contribution of the Ricardian Trade Theory. In: Jones, R., Weder, R. (eds) 200 Years of Ricardian Trade Theory. Springer, Cham. https://doi.org/10.1007/978-3-319-60606-4_6
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