Comparative Advantage - Essay

Words: 1522
Pages: 7

Surname: Salmon
First name: Tati
Student number : 12421179
Does the idea of comparative advantage provide a good explanation of current patterns of international trade?
For the last two centuries the international trade evolved a lot and many economists tried to explain it. One of the first theories that attempted to explain the international trade pattern was the Absolute advantage theory. A.Smith was a great economist; he is the one who created this theory. For A. Smith countries should specialize in products in which they have an absolute advantage. It was a good Theory but it was excluding countries that did not have any absolute advantage. David Ricardo another great British economist found this loophole in Smith’s theory and
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There is also the example of Tata Motors an Indian company which bought Jaguar a Britain company in order to expand their brand, with these strategies the nationality does not mean anything now. Here we can see that Ricardo theory is not relevant because the factors of productions are not immobile anymore , indeed now with the globalization and the Foreign direct investment, MNCs are likely to rules the international trade which is now more likely to be intra-firm trade.

According to Ricardo’s theory every country should stick to the same type of production. But he did not take into account the fact that a country and its production may evolved. That is the case of many Asian countries. We can take the example of South Korea and China which switched from an agricultural to industrial economies, especially in the manufacturing sector. These Newly industrialized countries (NICs) shows that it is possible to change the type of production and it shows that Ricardo’s theory is not relevant, because as we said before, according to the advantage comparative theory a country should stick to a unique type of production and these NICs are the proofs that it is possible for a country to switch its type of production and its type of trade. From this point of view, we can see that every country can switch their economies and they are not stuck forever at the same stage. There is one economist who talks about the economic growth of countries. For him this economic growth