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Terms of Trade, Competitive Advantage, and Trade Patterns

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  • Ramaa Vasudevan

Abstract

This paper investigates the competitive determination of the pattern of trade, seen as a choice of technique problem within a two-country, two-commodity, circulating capital model. It seeks to re-examine the analytical premises of the principle of comparative advantage. The establishment of competitive advantage is addressed in a Sraffian framework that allows the integration of the choice of technique problem to issues of growth and distribution. The focus is on exploring the validity of this principle when capital is internationally immobile—the context in which the principle was first postulated. Capital immobility imparts a degree freedom to the model. Closing the model and establishing a trade outcome on the basis of the principle of comparative advantage depends on the specification of appropriate boundary conditions. These boundary conditions boil down to some specification of relative scales of the trading partners and the scope for complete specialization and mutually beneficial gains from trade is circumscribed.

Suggested Citation

  • Ramaa Vasudevan, 2012. "Terms of Trade, Competitive Advantage, and Trade Patterns," Review of Political Economy, Taylor & Francis Journals, vol. 24(2), pages 183-202, April.
    • Handle: RePEc:taf:revpoe:v:24:y:2012:i:2:p:183-202
    DOI: 10.1080/09538259.2012.664324
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    Cited by:

    1. 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.
    2. 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".

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