IDEAS home Printed from https://ideas.repec.org/a/wea/worler/v2013y2013i2p83.html
   My bibliography  Save this article

Deconstructing the Theory of Comparative Advantage

Author

Listed:
  • Reinhard Schumacher

Abstract

This article critically examines the theory of comparative advantage, which underlies the wide-spread support of worldwide trade liberalisations. Both the classical and neoclassical formulations of it are shortly discussed and its essential assumptions are scrutinised. These include the international immobility of capital and labour, balanced trade, the existence of an adjustment mechanism which is responsible for the transformation of comparative production advantages into absolute price advantages, full employment and the perception of international trade as a static and harmonious phenomenon. It is shown that all these assumptions are neither theoretical valid nor do they coincide with empirical research. The whole rationale why international trade exists according this theory is deficient. The New Trade Theory, which claims to enhance the theory of comparative advantage, is unconvincing as a complement. It is concluded that the theory of comparative advantage should be dismissed. International trade theory, by relying on this theory, risks ignoring the most relevant and important elements with regard to international trade. The deficiencies of the theory of comparative advantage are especially crucial for trade policies that are derived from this theory, which is discussed with reference to the WTO and its ongoing Doha Round. View the Open Peer Discussion of this paper »

Suggested Citation

  • Reinhard Schumacher, 2013. "Deconstructing the Theory of Comparative Advantage," World Economic Review, World Economics Association, vol. 2013(2), pages 1-83, February.
    • Handle: RePEc:wea:worler:v:2013:y:2013:i:2:p:83
    as

    Download full text from publisher

    File URL: http://wer.worldeconomicsassociation.org/papers/deconstructing-the-theory-of-comparative-advantage/
    Download Restriction: no
    File URL: http://wer.worldeconomicsassociation.org/files/WEA-WER2-Schumacher.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kenen,Peter B., 2000. "The International Economy," Cambridge Books, Cambridge University Press, number 9780521644358, January.
    2. Syed Mahmud & Aman Ullah & Eray Yucel, 2004. "Testing Marshall-Lerner condition: a non-parametric approach," Applied Economics Letters, Taylor & Francis Journals, vol. 11(4), pages 231-236.
    3. John McCombie & Maurizio Pugno & Bruno Soro (ed.), 2002. "Productivity Growth and Economic Performance," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-50423-3.
    4. Turan Subasat, 2003. "What Does the Heckscher-Ohlin Model Contribute to International Trade Theory? A Critical Assessment," Review of Radical Political Economics, Union for Radical Political Economics, vol. 35(2), pages 148-165, June.
    5. Robinson, Joan, 1977. "What Are the Questions?," Journal of Economic Literature, American Economic Association, vol. 15(4), pages 1318-1339, December.
    6. Aldrich, John, 2004. "The Discovery of Comparative Advantage," Journal of the History of Economic Thought, Cambridge University Press, vol. 26(3), pages 379-399, September.
    7. Rune Skarstein, 2007. "Free Trade: A Dead End for Underdeveloped Economies," Review of Political Economy, Taylor & Francis Journals, vol. 19(3), pages 347-367.
    8. MacDonald, Glenn M & Markusen, James R, 1985. "A Rehabilitation of Absolute Advantage," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 277-297, April.
    9. Andrea Maneschi, 1998. "Comparative Advantage in International Trade," Books, Edward Elgar Publishing, number 856.
    10. Froot, Kenneth A. & Rogoff, Kenneth, 1995. "Perspectives on PPP and long-run real exchange rates," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 32, pages 1647-1688, Elsevier.
    11. Lapavitsas, Costas, 1996. "The Classical Adjustment Mechanism of International Balances: Marx's Critique," Contributions to Political Economy, Cambridge Political Economy Society, vol. 15(0), pages 63-79.
    12. repec:ilo:ilowps:338944 is not listed on IDEAS
    13. Leonard Gomes, 2003. "The Economics and Ideology of Free Trade," Books, Edward Elgar Publishing, number 2857.
    14. repec:ilo:ilowps:370120 is not listed on IDEAS
    15. Frey, Bruno S, et al, 1984. "Consensus and Dissension among Economists: An Empirical Inquiry," American Economic Review, American Economic Association, vol. 74(5), pages 986-994, December.
    16. Gottfried Haberler, 1929. "The Theory of Comparative Cost Once More," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 43(2), pages 376-381.
    17. Fagerberg, Jan, 1996. "Technology and Competitiveness," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 12(3), pages 39-51, Autumn.
    18. Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers Archive 11375, Iowa State University, Department of Economics.
    19. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, December.
    20. Jesus Felipe & Matias Vernengo, 2002. "Demystifying the Principles of Comparative Advantage : Implications for Developing Countries," International Journal of Political Economy, Taylor & Francis Journals, vol. 32(4), pages 49-75.
    21. Rose, Andrew K., 1991. "The role of exchange rates in a popular model of international trade : Does the 'Marshall-Lerner' condition hold?," Journal of International Economics, Elsevier, vol. 30(3-4), pages 301-316, May.
    22. Anwar Shaikh & Rania Antonopoulos, 1998. "Explaining long term exchange rate behavior in the United States and Japan," Macroeconomics 9809011, University Library of Munich, Germany.
    23. Alston, Richard M & Kearl, J R & Vaughan, Michael B, 1992. "Is There a Consensus among Economists in the 1990's?," American Economic Review, American Economic Association, vol. 82(2), pages 203-209, May.
    24. Rose, Andrew K., 1990. "Exchange rates and the trade balance : Some evidence from developing countries," Economics Letters, Elsevier, vol. 34(3), pages 271-275, November.
    25. William MILBERG, 2004. "The changing structure of trade linked to global production systems: What are the policy implications?," International Labour Review, International Labour Organization, vol. 143(1-2), pages 45-90, March.
    26. Krugman, Paul, 1987. "The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher : Notes on trade in the presence of dynamic scale economies," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 41-55, October.
    27. Hassan Shirvani & Barry Wilbratte, 1997. "The Relationship Between The Real Exchange Rate and The Trade Balance: An Empirical Reassessment," International Economic Journal, Taylor & Francis Journals, vol. 11(1), pages 39-50.
    28. John T. Harvey, 1995. "The International Monetary System and Exchange Rate Determination: 1945 to the Present," Journal of Economic Issues, Taylor & Francis Journals, vol. 29(2), pages 493-502, June.
    29. Milberg, William S.,, 2004. "The changing structure of international trade linked to global production systems : what are the policy implications?," ILO Working Papers 993701203402676, International Labour Organization.
    30. Lant Pritchett, 1997. "Divergence, Big Time," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 3-17, Summer.
    31. Morgenstern, Oskar, 1972. "Thirteen Critical Points in Contemporary Economic Theory: An Interpretation," Journal of Economic Literature, American Economic Association, vol. 10(4), pages 1163-1189, December.
    32. P. J. Verdoorn, 2002. "Factors that Determine the Growth of Labour Productivity," Palgrave Macmillan Books, in: John McCombie & Maurizio Pugno & Bruno Soro (ed.), Productivity Growth and Economic Performance, chapter 2, pages 28-36, Palgrave Macmillan.
    33. Claudio Sardoni, 1986. "Marx and Keynes on Effective Demand and Unemployment," History of Political Economy, Duke University Press, vol. 18(3), pages 419-441, Fall.
    34. Dan Fuller & Doris Geide-stevenson, 2003. "Consensus Among Economists: Revisited," The Journal of Economic Education, Taylor & Francis Journals, vol. 34(4), pages 369-387, December.
    35. Przemyslaw Kowalski, 2011. "Comparative Advantage and Trade Performance: Policy Implications," OECD Trade Policy Papers 121, OECD Publishing.
    36. Ronald W. Jones, 1980. "Comparative and Absolute Advantage," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 116(III), pages 235-260, September.
    37. Brewer, Anthony, 1985. "Trade with fixed real wages and mobile capital," Journal of International Economics, Elsevier, vol. 18(1-2), pages 177-186, February.
    38. Dudley Dillard, 1988. "The Barter Illusion in Classical and Neoclassical Economics," Eastern Economic Journal, Eastern Economic Association, vol. 14(4), pages 299-318, Oct-Dec.
    39. 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.
    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. 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.
    2. 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.
    3. 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.
    4. Mario Seccareccia, 2014. "Were the original Canada–US Free Trade Agreement (CUSFTA) and the North American Free Trade Agreement (NAFTA) significant policy turning points? Understanding the evolution of macroeconomic policy f," Review of Keynesian Economics, Edward Elgar Publishing, vol. 2(4), pages 414-428, October.
    5. Muhammad Alkirom Wildan & Mochamad Ali Imron & Endang Siswati & Siti Rosyafah, 2021. "Macroeconomic Factors Affecting Natural Gas Export Management," International Journal of Energy Economics and Policy, Econjournals, vol. 11(1), pages 639-644.
    6. 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.
    7. Yuhang Bai & Li Li & Fengting Wang & Lizhong Zhang & Lichun Xiong, 2022. "Impact of Dairy Imports on Raw Milk Production Technology Progress in China," IJERPH, MDPI, vol. 19(5), pages 1-17, March.
    8. Carmen Elena Dorobat, 2015. "A brief history of international trade thought: From pre-doctrinal contributions to the 21st century heterodox international economics," The Journal of Philosophical Economics, Bucharest Academy of Economic Studies, The Journal of Philosophical Economics, vol. 8(2), May.
    9. Hafele, Jakob & Kuhls, Sonia, 2022. "Trade-off or tension: Can carbon be priced without risking economic competitiveness?," ZOE Discussion Papers 9, ZOE. institute for future-fit economies, Bonn.
    10. Selamet Joko Utomo & Titov Chuk's Mayvani & Mochamad Ali Imron, 2021. "Coal Energy and Macroeconomic Conditions," International Journal of Energy Economics and Policy, Econjournals, vol. 11(4), pages 426-432.

    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. 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.
    2. Jorge Morales Meoqui, 2011. "Comparative Advantage and the Labor Theory of Value," History of Political Economy, Duke University Press, vol. 43(4), pages 743-763, Winter.
    3. Timothy C. Haab & John C. Whitehead, 2017. "What do Environmental and Resource Economists Think? Results from a Survey of AERE Members," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 11(1), pages 43-58.
    4. Ferto, Imre, 2005. "Is There a Consensus among Agricultural Economist?," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24669, European Association of Agricultural Economists.
    5. Morales Meoqui, Jorge, 2012. "On the distribution of authorship-merits for the comparative-advantage proposition," MPRA Paper 35905, University Library of Munich, Germany.
    6. Ann Mari May & Mary G. Mcgarvey & Robert Whaples, 2014. "Are Disagreements Among Male And Female Economists Marginal At Best?: A Survey Of Aea Members And Their Views On Economics And Economic Policy," Contemporary Economic Policy, Western Economic Association International, vol. 32(1), pages 111-132, January.
    7. Michele Di Maio, 2013. "Are Mainstream and Heterodox Economists Different? An Empirical Analysis," American Journal of Economics and Sociology, Wiley Blackwell, vol. 72(5), pages 1315-1348, November.
    8. Niclas Berggren & Henrik Jordahl & Charlotta Stern, 2009. "The Political Opinions of Swedish Social Scientists," Finnish Economic Papers, Finnish Economic Association, vol. 22(2), pages 75-88, Autumn.
    9. William MILBERG, 2004. "The changing structure of trade linked to global production systems: What are the policy implications?," International Labour Review, International Labour Organization, vol. 143(1-2), pages 45-90, March.
    10. Martin Grančay & Nóra Szikorová, 2012. "David Ricardo, Robert Torrens a autorstvo princípu komparatívnych výhod [David Ricardo, Robert Torrens and the Origins of the Principle of Comparative Advantage]," Politická ekonomie, Prague University of Economics and Business, vol. 2012(3), pages 380-394.
    11. Deborah Winkler & William Milberg, 2011. "Classical and Neoclassical Theories of Offshore Outsourcing," Working Papers 1113, New School for Social Research, Department of Economics.
    12. Mohsen Bahmani & Hanafiah Harvey & Scott W. Hegerty, 2013. "Empirical tests of the Marshall-Lerner condition: a literature review," Journal of Economic Studies, Emerald Group Publishing, vol. 40(3), pages 411-443, May.
    13. Lucey, Brian M. & Delaney, Liam, 2007. "A psychological, attitudinal and professional profile of Irish economists," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 36(6), pages 841-855, December.
    14. Daniel B. Klein & Charlotta Stern, 2007. "Is There a Free‐Market Economist in the House? The Policy Views of American Economic Association Members," American Journal of Economics and Sociology, Wiley Blackwell, vol. 66(2), pages 309-334, April.
    15. Simon Kemp, 2008. "Lay attitudes to trade with low-wage countries," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 3, pages 335-343, April.
    16. Ernesto R. Gantman & Marcelo P. Dabós, 2018. "Does trade openness influence the real effective exchange rate? New evidence from panel time-series," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 9(1), pages 91-113, March.
    17. repec:cup:judgdm:v:3:y:2008:i::p:335-343 is not listed on IDEAS
    18. Ariel Dvoskin & Gabriel Brondino, 2022. "An appraisal of alternative Ricardian trade models," BCRA Working Paper Series 2022104, Central Bank of Argentina, Economic Research Department.
    19. Shah, Anwar & Majeed, Muhammad Tariq, 2014. "Real Exchange Rate and Trade Balance in Pakistan: An ARDL Co-integration Approach," MPRA Paper 57674, University Library of Munich, Germany.
    20. Mary Amiti & Jozef Konings, 2007. "Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia," American Economic Review, American Economic Association, vol. 97(5), pages 1611-1638, December.
    21. Karl Beyer & Stephan Puehringer, 2019. "Divided we stand? Professional consensus and political conflict in academic economics," ICAE Working Papers 94, Johannes Kepler University, Institute for Comprehensive Analysis of the Economy.

    More about this item

    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:wea:worler:v:2013:y:2013:i:2:p:83. 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: Jake McMurchie (email available below). General contact details of provider: https://edirc.repec.org/data/worecea.html .

    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.