The Main Contribution of the Ricardian Trade Theory

Abstract

In the Ricardian trade model, even a country with no absolute advantage in the production of any commodity can gain from international trade, specializing in the production of the good in which it is has a comparative advantage. A three-country, three-commodity setting with given numbers for each country’s labor requirement is used to illustrate possible patterns of trade. More recent trade models, such as the Swedish contribution by Heckscher and Ohlin, enriched the basic form of the Ricardian model by allowing more factors of production and differences in the endowments between countries and capital/labor ratios between commodities. However, the basic importance of the power of comparative advantage as the key to possible international trade patterns is maintained. The Ricardian model, with its basic simplicities, remains a popular set of explanations for fundamental features of international trade.