The Concept of the International Division of Labour and Principles of Cooperation

Abstract

The international division of labour theory is essentially based upon two elements: the “Theorem of Comparative Cost Advantages”, which originates from Ricardo, and the “Factor Proportion Theo- rem” founded by Heckscher and Ohlin. The reason why international trade takes place and profits result for all participants in the process, can be deduced from the theorem of comparative cost advantages. The factor proportion theorem, which is considerably younger than the theorem of comparative cost advantages, attributes comparative cost advantages to differences between countries in” the way they are endowed with factors of production. World trade and division of labour can be said to be optimal, in terms of economic welfare, when they offer each participating country a national welfare maximum — assuming a given distribution of factors. This optimum would then be achieved if each country produces those goods, the factor absorption of which — in the course of the production process — comes closest to the country’s factor distribution. Each country participating in international trade thus achieves the maximum national product possible with its given supply of factors of production.