David Ricardo’s Comparative Advantage and Developing Countries: Myth and Reality

Abstract

ABSTRACTThis article examines David Ricardo’s trade theory, which emphasises that if protection is removed, resources would be expected to move away from high cost to low-cost products and as a result productivity would rise. His comparative advantage trade theory advocates in favour of a free trade, the argument implied generally to defend laissez faire. This study discusses the mainstream arguments relating to static and dynamic gains from trade liberalisation which seem to be based on weak theoretical and empirical grounds. It will also briefly discuss free trade and its impact on the industrial and agricultural sectors and how the performance of both sectors could have a long-term impact on local industrialisation, food security, employment and well-being of the people in developing countries. This article builds on this political economy and looks in particular at free trade policies and their impact on the economies of developing countries. Free trade theory, which has wide support among international financial institutions, namely, the IMF (International Monetary Fund), World Bank, WTO (World Trade Organisation) draws on David Ricardo’s theory. The study has found that free trade policy will deepen further the process of uneven development and unequal exchange.