An Appraisal of Alternative Ricardian Trade Models

Abstract

ABSTRACT A prevalent feature of the global economy is the relevance of trade in intermediates due to production fragmentation. This phenomenon has led to the revival and development of trade models that include inter-industry relations. A wide variety of Ricardian trade models cope with this feature. In this article, we develop a Sraffa-Leontief framework to compare and appraise these models. The models are distinguished by their underlying theory of distribution and the assumptions about the degree of international capital mobility. We compare the predicted effects on employment and the distribution of domestic income. Furthermore, we assess if the model assures the existence of a shared trade pattern, i.e., if it can ensure that all countries engage in trade (as the principle of comparative advantage predicts). It follows from our appraisal that it is not warranted that all countries can engage in international trade, even if they want to. In other words, if allowed to work, the ‘strong balancing forces’ may not make a country internationally competitive in a world with production fragmentation.