IDEAS home Printed from https://ideas.repec.org/a/eee/streco/v59y2021icp375-383.html
   My bibliography  Save this article

On absolute and comparative advantage in international trade: A Pasinetti pure labour approach

Author

Listed:
  • Machado, Pedro S.
  • Trigg, Andrew B.

Abstract

This paper builds upon Pasinetti's pure labour model, formalizing some of the insights that he has provided into the structure of international trade. A systematic approach is followed, starting with restrictive assumptions that are relaxed in subsequent stages of analysis. The starting point is a model in which two countries, one advanced and the other underdeveloped, have equal costs of production. This implies that there are no incentives for trade. At a second stage, we introduce and formalize the conditions required for these countries to exhibit absolute cost advantages, based on wage disparities. Finally, the paper establishes the conditions required for comparative advantage, based on relative differences in technology. Building on an interpretation of Ricardo's writings on trade, it is shown that absolute advantage is critical for the two countries to realise potential cost reductions afforded by comparative advantage. This abstract insight, based on the Pasinetti pure labour system, suggests that absolute advantage has a more fundamental role in international trade than given by previous studies, which focus more on either the international mobility of money capital or the international fragmentation of production.

Suggested Citation

  • Machado, Pedro S. & Trigg, Andrew B., 2021. "On absolute and comparative advantage in international trade: A Pasinetti pure labour approach," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 375-383.
    • Handle: RePEc:eee:streco:v:59:y:2021:i:c:p:375-383
    DOI: 10.1016/j.strueco.2021.09.005
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0954349X21001193
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.strueco.2021.09.005?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Shaikh, Anwar, 2016. "Capitalism: Competition, Conflict, Crises," OUP Catalogue, Oxford University Press, number 9780199390632.
    2. Enrico Bellino & Saverio M. Fratini, 2022. "Absolute advantages and capital mobility in international trade theory," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 29(2), pages 271-293, March.
    3. Anwar Shaikh, 1999. "Real Exchange Rates and the International Mobility of Capital," Macroeconomics 9904002, University Library of Munich, Germany.
    4. Ariel Dvoskin & Germán David Feldman, 2018. "Income distribution and the balance of payments: a formal reconstruction of some Argentinian structuralist contributions - Part II: Financial dependency," Review of Keynesian Economics, Edward Elgar Publishing, vol. 6(3), pages 369-386, July.
    5. Pasinetti,Luigi, 1993. "Structural Economic Dynamics," Cambridge Books, Cambridge University Press, number 9780521432825, January.
    6. Christian Gehrke, 2015. "Ricardo's discovery of comparative advantage revisited: a critique of Ruffin's account," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 22(5), pages 791-817, October.
    7. Deardorff, Alan V., 2005. "Ricardian comparative advantage with intermediate inputs," The North American Journal of Economics and Finance, Elsevier, vol. 16(1), pages 11-34, March.
    8. Salvatore Baldone & Fabio Sdogati & Lucia Tajoli, 2007. "On Some Effects of International Fragmentation of Production on Comparative Advantages, Trade Flows and the Income of Countries," The World Economy, Wiley Blackwell, vol. 30(11), pages 1726-1769, November.
    9. Paul A. Samuelson, 1969. "Presidential Address The Way of an Economist," International Economic Association Series, in: Paul A. Samuelson (ed.), International Economic Relations, pages 1-11, Palgrave Macmillan.
    10. Roy J. Ruffin, 2005. "Debunking a Myth: Torrens on Comparative Advantage," History of Political Economy, Duke University Press, vol. 37(4), pages 711-722, Winter.
    11. Roy J. Ruffin, 2002. "David Ricardo's Discovery of Comparative Advantage," History of Political Economy, Duke University Press, vol. 34(4), pages 727-748, Winter.
    12. Mauro L. Baranzini & Amalia Mirante, 2018. "Luigi L. Pasinetti: An Intellectual Biography," Palgrave Studies in the History of Economic Thought, Palgrave Macmillan, number 978-3-319-71072-3, December.
    13. Heinz D. Kurz & Neri Salvadori (ed.), 1998. "The Elgar Companion to Classical Economics," Books, Edward Elgar Publishing, volume 0, number 851.
    14. Piero Sraffa & L. Einaudi, 1930. "An Alleged Correction of Ricardo," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 44(3), pages 539-545.
    15. ., 1998. "Comparatie Advantage," Chapters, in: Heinz D. Kurz & Neri Salvadori (ed.), The Elgar Companion to Classical Economics, volume 0, chapter 29, Edward Elgar Publishing.
    16. Pierangelo Garegnani, 2024. "The Classical Theory of Wages and the Role of Demand Schedules in the Determination of Relative Prices," Springer Studies in the History of Economic Thought, in: Roberto Ciccone (ed.), Capital Theory, the Surplus Approach, and Effective Demand, pages 297-303, Springer.
    17. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-839, December.
    18. Reinhard Schumacher, 2013. "Deconstructing the Theory of Comparative Advantage," World Economic Review, World Economics Association, vol. 2013(2), pages 1-83, February.
    19. Ariel Dvoskin & Germán David Feldman, 2018. "Income distribution and the balance of payments: a formal reconstruction of some Argentinian structuralist contributions- Part I: Technical dependency," Review of Keynesian Economics, Edward Elgar Publishing, vol. 6(3), pages 352-368, July.
    20. Brewer, Anthony, 1985. "Trade with fixed real wages and mobile capital," Journal of International Economics, Elsevier, vol. 18(1-2), pages 177-186, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Moreno-Brieva, Fernando, 2022. "Effective way to measure the specialization levels of an economy in the era of global value chains," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 420-429.
    2. Luis Daniel Torres-Gonzalez & Jacobo Ferrer-Hernandez & Adrian Martınez, 2022. "On the Long-Run Neutrality of Profits-Wages Ratios in the Determination of International Relative Prices Under Absolute Advantages," Working Papers 2208, New School for Social Research, Department of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Parrinello, Sergio, 2022. "On Some “New” Interpretations of Ricardo’s Principle of Comparative Advantages," Centro Sraffa Working Papers CSWP60, Centro di Ricerche e Documentazione "Piero Sraffa".
    2. Morales Meoqui, Jorge, 2023. "The Demystification Of David Ricardo’S Famous Four Numbers," Journal of the History of Economic Thought, Cambridge University Press, vol. 45(3), pages 447-466, September.
    3. Ariel Dvoskin & Gabriel Brondino, 2022. "An appraisal of alternative Ricardian trade models," BCRA Working Paper Series 2022104, Central Bank of Argentina, Economic Research Department.
    4. Jorge Morales Meoqui, 2017. "Ricardo's Numerical Example Versus Ricardian Trade Model: a Comparison of Two Distinct Notions of Comparative Advantage," Economic Thought, World Economics Association, vol. 6(1), pages 35-55, March.
    5. Ferrer, Jacobo & Martínez-González, Adrián & Torres-González, Luis Daniel, 2024. "On the Role of Profits-Wages Ratios in the Determination of the Long-Run Behavior of International Relative Prices," Centro Sraffa Working Papers CSWP67, Centro di Ricerche e Documentazione "Piero Sraffa".
    6. Luis Daniel Torres-Gonzalez & Jacobo Ferrer-Hernandez & Adrian Martınez, 2022. "On the Long-Run Neutrality of Profits-Wages Ratios in the Determination of International Relative Prices Under Absolute Advantages," Working Papers 2208, New School for Social Research, Department of Economics.
    7. Gabriel Felbermayr & Benjamin Jung & Wilhelm Kohler & Philipp Harms & Jakob Schwab, 2017. "Ricardo – gestern und heute," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 70(09), pages 03-18, May.
    8. Morales Meoqui, Jorge, 2012. "On the distribution of authorship-merits for the comparative-advantage proposition," MPRA Paper 35905, University Library of Munich, Germany.
    9. Dvoskin, Ariel & Ianni, Guido, 2021. "Produced means of production and the chain of comparative advantages," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 635-647.
    10. Morales Meoqui, Jorge & Assistant, JHET, 2020. "Overcoming Absolute And Comparative Advantage: A Reappraisal Of The Relative Cheapness Of Foreign Commodities As The Basis Of International Trade," OSF Preprints u6esg, Center for Open Science.
    11. Ariel Dvoskin & Germán David Feldman & Guido Ianni, 2020. "New‐structuralist exchange‐rate policy and the pattern of specialization in Latin American countries," Metroeconomica, Wiley Blackwell, vol. 71(1), pages 22-48, February.
    12. Madarász, Aladár, 2024. "Posztót borért. Töredékek egy "nem triviális, de igaz" közgazdasági doktrína történetéből [Cloth for wine. Fragments from the history of a non-trivial but true" economic doctrine]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 379-407.
    13. Bellino, Enrico & Nerozzi, Sebastiano, 2013. "Causality and interdependence in Pasinetti's works and in the modern classical approach," MPRA Paper 52179, University Library of Munich, Germany.
    14. Deng, Kent & Shen, Jim Huangnan & Guo, Jingyuan, 2022. "Performance and mechanisms of the Maoist economy: a holistic approach, 1950-1980," Economic History Working Papers 116401, London School of Economics and Political Science, Department of Economic History.
    15. Boundi-Chraki, Fahd & Perrotini-Hernández, Ignacio, 2021. "Absolute cost advantage and sectoral competitiveness: Empirical evidence from NAFTA and the European Union," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 162-173.
    16. Chumbita, Joan Severo, 2024. "Revisión de los fundamentos del desarrollo económico según Alfred Marshall: rendimientos crecientes a escala, competencia y demanda efectiva," Ensayos de Economía 21275, Universidad Nacional de Colombia Sede Medellín.
    17. Wirkierman, Ariel Luis, 2022. "Productivity homogenisation trends of six advanced industrial economies: A vertically hyper-integrated approach," Structural Change and Economic Dynamics, Elsevier, vol. 61(C), pages 495-511.
    18. Alan V Deardorff, 2011. "How Robust is Comparative Advantage?," World Scientific Book Chapters, in: Robert M Stern (ed.), Comparative Advantage, Growth, And The Gains From Trade And Globalization A Festschrift in Honor of Alan V Deardorff, chapter 17, pages 183-195, World Scientific Publishing Co. Pte. Ltd..
    19. Robert A. Blecker, 2022. "New advances and controversies in the framework of balance‐of‐payments‐constrained growth," Journal of Economic Surveys, Wiley Blackwell, vol. 36(2), pages 429-467, April.
    20. Oladi, Reza & Beladi, Hamid, 2010. "On technical progress and the boundary of non-traded goods," Mathematical Social Sciences, Elsevier, vol. 60(3), pages 204-209, November.

    More about this item

    Keywords

    Pasinetti; International trade; Classical political economy; Absolute advantage; Comparative advantage;
    All these keywords.

    JEL classification:

    • B17 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - International Trade and Finance
    • B51 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Socialist; Marxian; Sraffian
    • F1 - International Economics - - Trade

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:streco:v:59:y:2021:i:c:p:375-383. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/525148 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.