International trade cooperation

Backround of the Ricardian trade theory

Definition comparative advantage

The Ricardian theory of trade is a theory of international trade developed by the English economist David Ricardo in the early 19th century. According to this theory, countries should specialize in producing and exporting the goods and services that they can produce relatively efficiently and cheaply, and import the goods and services that it is relatively inefficient or expensive to produce domestically.

The theory is based on the idea of comparative advantage, which states that a country has a comparative advantage in producing a particular good or service if it can produce it at a lower opportunity cost than other countries. Opportunity cost is the value of the next best alternative that must be given up in order to pursue a certain action. For example, if a country has a comparative advantage in producing wheat, it means that it can produce wheat more efficiently and cheaply than other countries, even if it is not the most efficient producer of wheat in absolute terms.

According to the Ricardian theory, countries should specialize in producing and exporting the goods and services in which they have a comparative advantage, and import the goods and services in which they have a comparative disadvantage. This specialization allows countries to take advantage of their comparative advantage and increase their overall economic efficiency and prosperity.

The Ricardian theory of trade argues that international trade is beneficial for countries because it allows them to specialize in producing the goods and services that they can produce relatively efficiently, and import the goods and services that it is relatively inefficient or expensive to produce domestically. This specialization leads to increased economic efficiency and prosperity for all participating countries.

basic rationale

- within each national economy resource should be allocated to most efficient kind of product

- Free trade spurs reallocation of resources toward most efficient uses

- If each godd is produced in the most efficient way within each national economy, then total consumer wlefare incresses

the historical reality of trade coopeartaion

Universal free trade ahs never existed (mercantilism, aermican aand german protectionim in 19th centyry)

Free trade ahs gone into reerse many times (interware framgention, reversal of bristih policy, trump)

trade liberlisation are very difficult effec (corn law, doha round failure)

alternative internaitonal trade theory (today new trade theroy) chaggence riccand trade theory.