Essay on The Comparative Advantage of Greece in the Era of Recession

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The comparative advantage of Greece in the era of recession
Lampros Gallos National and Kapodistrian University of Athens Athens, Greece lam.gal@hotmail.com

Abstract

The aim of this paper is to investigate the export behaviour of Greece and to identify its comparative advantage. Moreover, through the conclusions of the analysis, is investigated whether the export activity of the country coincides with its comparative advantage especially in the present circumstances, those of recession. Initially, we define the comparative advantage based on the approaches of Adam Smith, David Ricardo's and Heckscher-Ohlin. Furthermore we analyze the current situation of the country, Greece’s economic structure and its trade performance, mainly the …show more content…
David Ricardo, in 1817, enunciated his refinement of Smith‟s concept by postulating the principle of comparative advantage (as opposed to Smith‟s concept of absolute advantage). The theory of comparative advantage states that even if a country is able to produce all its good at lower costs than another country can, trade still benefits both countries, based on comparative costs. His writings demonstrated what has become known as: “…the principle of comparative advantage: a nation, like a person, gains from the trade by exporting the goods or services in which it has its greatest comparative advantage in productivity and importing those in which has the least comparative advantage…”. The key word is comparative, meaning relative and not necessarily absolute. There are gains from trade whenever the relative price ratios for two goods differ under international exchange for what would be under conditions of no trade. In addition, the theory of comparative advantage demonstrates that countries jointly benefit from trade (under the assumption of both goods). With the theory of absolute advantage , Ricardo‟s theory of comparative advantage does not answer why production cost differ within each country and also no consideration is given to the possibility of producing the same goods with different combinations of factors. The leading theory of what determines nation‟s patterns was presented by Eli Heckscher in 1919 and a clear overall explanation
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