Comparative advantage is a theory of trade, traditionally attributed to David Ricardo, which argues that trade between two countries can be advantageous even when one country has an absolute advantage (higher efficiency) in producing all goods and services.
The theory of comparative advantage has its roots in the literature on international trade, and is classically attributed to David Ricardo (1821). Its central argument is that a country may gain from trade with another even if it is more efficient than the latter in the production of all goods. To use Ricardo’s now famous example, England and Portugal would find it advantageous to trade Portuguese wine for English cloth even if Portugal was more efficient in the production of both goods, so long as it is relativelymore efficient in the production of wine over cloth. Say, in line with Ricardo, that Portugal produced a quantity of wine with the labour of 80 person-years (versus 120 in England) and cloth with 90...
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Somaya, D. (2016). Comparative Advantage. In: Augier, M., Teece, D. (eds) The Palgrave Encyclopedia of Strategic Management. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-94848-2_404-1
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DOI: https://doi.org/10.1057/978-1-349-94848-2_404-1
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