Ricardo's international trade theory: beyond the comparative cost example

Abstract

that the labour embodied in the export goods given in exchange for one unit of the imported good is less than the labour which the country would have to utilise if it itself were to produce one unit of the imported good. There is no question that this 'Ricardian' model, based on the example of England and Portugal trading cloth for wine in chapter 7 of Ricardo's Principles of Political Economy and Taxation (1951A), is an excellent pedagogical device to illustrate the role of compara tive advantage in determining a country's trade pattern and the resulting gains from trade. Ricardo showed that trade enhances a country's welfare even though it may be more efficient than its trading partner in producing each of its commodities, as long as its relative productivity advantage differs between them. The principle of comparative advantage