Principle Of Comparative Advantage Research Articles

Does international trade lead to uneven development or convergent growth?

This study presents a model of North–South trade and development and investigates the growth rates of two countries under a trade pattern that the North specializes in investment goods while the South specializes in consumption goods. Many studies on North–South trade conclude that both countries' growth rates are equalized in the long run. Conversely, we show that if the ‘comparative advantage’ is explicitly considered, both countries' growth rates are not equalized in some cases and, hence, the South cannot catch up with the North even in the long run. Unlike many previous studies, we close the model by fixing each country's income distribution and making the price and quantity variables interdependent. Our results show that the growth rates of both countries are equalized in the long run if their trade patterns are fixed, irrespective of their comparative advantages, whereas their growth rates are not equalized in some cases if their trade patterns are determined by the comparative advantage principle.

The failure of Algeria’s industrialization strategy, 1967–1989: a new structural economics perspective

Following the theoretical framework of New Structural Economics, this article attempts to explain why Algeria’s industrialization strategy failed over the period 1967–1989. Based on this approach, this paper shows that the overdevelopment of a big push industrialization strategy in Algeria since independence, which prioritized capital-intensive heavy industry, violates the comparative advantage principle identified by its factor endowments and gives rise to domestic market distortions and the misallocation of scarce resources. Simultaneously, to scaffold such a development mode, the Algerian government put forth an organic yet deeply distorted system. We conclude that the experience engendered serious weaknesses in Algeria’s industrial structure and planning, and it resulted in an unbalanced economic structure. Thus, Algeria’s industrialization strategy was disappointing in terms of economic outcomes and impact. This failure is often perceived as one of the main origins of the political, social and economic crisis faced by the country for more than a decade. Our findings suggest that the redesign of growth and industrialization strategies should better reflect Algeria’s endowments structure and level of development. Indeed, consistency of a broad-based and industry-based economy with its comparative advantage is one of the best ways to achieve high sustainable economic growth in Algeria.

О МЕРЕ ОТВЕТСТВЕННОСТИ ТЕЛЕОЛОГИЧЕСКИХ МЕХАНИЗМОВ РЫНКА И ГОСУДАРСТВА ЗА УСТОЙЧИВОЕ СОЦИАЛЬНО-ЭКОНОМИЧЕСКОЕ РАЗВИТИЕ РОССИИ

The article examines the various instrumental role and measure of responsibility of the teleological mechanisms of the market and the state for certain forms of regulation, transformation and ordering of public life and human activity corresponding to their nature and purpose – the teleological mechanism of the market is responsible for achieving a highly efficient economy, and the teleological mechanism of the state is responsible for macroeconomic stabilization in the broadest sense of the word. Trends in the ratio of teleological mechanisms of the market and the state according to their share in the structure of gross domestic product in Russia and the countries of the European Union are revealed, determining (trends) the level of economic activity of these states, which differ in the sectoral structure of gross domestic product, the share of the wage fund and the cost of forming this gross domestic product. The measure of responsibility is determined by their ratio, the optimal value of which can be determined solely on the basis of a posteriori analysis of the proposed key indicators (not only for one, although the most important one is the share in GDP) of the efficiency of the functioning of the private and public sectors of the economy, based on the concept (principles) of comparative advantage by D. Ricardo. An algorithm is proposed for determining the real correlation between the teleological mechanisms of the market and the state, which allows overcoming information asymmetry (numerical variability) and expanding the horizon of responsibility of these mechanisms.

Impact of Nigeria-China relations on development in Nigeria, 2010-2020

Nigeria-China relations had a considerable influence on Nigeria's development, and the Peoples Republic of China emerged as one of Nigeria's primary commercial partners and a major source of foreign direct investment (FDI) in recent decades. To this, the relationship between the two nations has influenced Nigeria's growth in various ways, especially in the area of infrastructure development obtained through loans, investments, skills and technology transfer. China has contributed to the development of Nigeria’s infrastructure, thus, fostering economic growth in addition to influencing regional integration. Furthermore, in the energy and power sectors, Chinese firms have been involved in the construction of power plants, transmission lines, and renewable energy projects in Nigeria aimed at addressing power deficits and improving access to electricity, which is essential for industrial development and improving Nigerians' quality of life. China is one of Nigeria's top commercial partners and a substantial source of foreign direct investment (FDI). Chinese enterprises working in Nigeria have provided technology, skills, and knowledge transfer that has benefited Nigerian industries. Chinese investments in industries like telecommunications, manufacturing and agriculture have eased the transfer of technical skills while also increasing efficiency in production methods. This paper aims to illustrate the importance of bilateral trade relations as a means of change and development especially when the nations involved are in need of each other. The paper adopts qualitative approach to the study of international relations. The paper adopts dependency theory to analyze bilateral trade relation between Nigeria and China. The theory believes that trade should only be done to enhance prosperity and also argued that the principle of comparative advantage ensures everyone would profit from the interaction. The paper reveals and concludes that Nigeria-China relations have made a substantial impact on Nigeria's economic development notwithstanding some notable deficiencies that have arisen in areas of unfair labour practices amongst others

История экономической мысли глазами структуралиста (Часть 1. Классики и Маркс)

The paper attempts to rethink the problem of the optimal structure of the economy and economic growth in the history of thought. The concept of «post-truth» according to S. Fuller is used. A. Smith used the strategy of changing speech practices and interpreting facts against the mercantilists, and subsequently K. Marx did the same for the entire classical school. The history of thought legitimizes the economic mainstream — the dominant version of economic theory, ignoring the previous versions of rhetorical domination. The central role in the problem of determining the optimal structure of the economy is given to the old discussion about the relationship between productive and unproductive labor. Both Smith, and Ricardo, and Marx were looking for the main source of value and mechanisms for its redistribution and withdrawal in favor of certain social groups. The division into productive and non-productive types of economic activity is recognized as incorrect and discarded at modern time. Condemned by A. Smith the orientation of economic agents towards extracting rent can block economic growth in fact. As D. Ricardo shows, rent-seeking behavior can lead to the disappearance of profits and the achievement of the so-called «stationary state» under certain conditions,. The principle of comparative advantage, Ricardo discovered the principle of comparative advantage. That contradicts both «equilibrium in the long run» and the theory of labor value. This principle makes it possible to build a hierarchy of geopolitical subjects in the spirit of world-system analysis with a certain modification,. Marx ignores this principle, using «surplus value» as the basis of his concept. According his approach value is created only in the sphere of material production. This kind of research leaves the problem of the optimal structure of the economy unresolved.

Regions may share factors of production, too: Implementation of topologies within the World Trade Model

ABSTRACT The World Trade Model (WTM), which incorporates input - output data and minimizes global factor costs subject to satisfying demands while being constrained by each region's factor endowments, is one of models based on the principle of comparative advantage. These factor endowments are not necessarily fixed in each region as traditionally posed in most theories, but rather can or de facto be shared across regions. We highlight the importance of this feature for economic modeling, and then introduce an extension for the integration of topological rules into WTM to facilitate the sharing of factors with directionality (one-way or two-way) across regions. A series of numerical examples illustrating a range of sharing scenarios is demonstrated to facilitate an examination of this extension's features. Finally, we discuss the most interesting cases in which this topology can be used, as well as the additional challenges or implementations that can be derived from this work.

An Appraisal of Alternative Ricardian Trade Models

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.

Determinants of Exports in Developing Countries

According to the orthodox classical economist as well to the modern liberal view trade is equivalent to an engine of economic growth. Exports promotion strategy is often in accordance with the principle of comparative advantage, when a country specialises in a product, which it can produce competitively. The goods become available to the community of the world at cheaper prices. The markets are extended. The internal and external economies are attained. Income and employment levels expand. Consequently process of economic development is facilitated. In a nutshell, putting more emphasis on the promotion of exports would permit the optimal allocation of world resources and, therefore, returns from trade sector depend upon accelerating growth of exports. The proposition of FDI led exports growth is controversial in empirical literature. But the role of domestic investment is believed to be much important for export expansion strategies. In any case the importance of FDI, if any, cannot diminish the role of productive investment from the domestic economy. While private domestic investment can be regarded as a permanent and reliable channel to enhance production capacity, investment in public sector has been considered important, for example in roads, communication and other public goods and services that are essential to stimulate private investment. Furthermore, government has a decisive role through support for research and contract with foreign buyers as well as in facilitating access to credit to both directly and indirectly exporting terms.

Technology seeking, R&D localization and comparative advantage: evidence from Chinese R&D-oriented OFDI

ABSTRACT Using the logit model of discrete explained variable, this article explores the theoretical logic and underlying mechanism of Chinese outward foreign direct investment (OFDI) in developed countries. It finds that Chinese enterprises conduct R&D-oriented OFDI in countries with advanced technologies and rich R&D resources. These enterprises seek to learn applied rather than cutting edge technologies. Furthermore, Chinese R&D-oriented OFDI, which focuses on technology seeking and R&D localization, follows the principle of comparative advantage. The research provides new evidence for OFDI from China and a theoretical explanation of its underlying logic.

Enterprise Risk Management: Theory and Practice

The Chief Risk Officer of Nationwide Insurance teams up with a distinguished academic to discuss the benefits and challenges associated with the design and implementation of an enterprise risk management program. The authors begin by arguing that a carefully designed ERM program—one in which all material corporate risks are viewed and managed within a single framework—can be a source of long‐run competitive advantage and value through its effects at both a “macro” or company‐wide level and a “micro” or business‐unit level.At the macro level, ERM enables senior management to identify, measure, and limit to acceptable levels the net exposures faced by the company. By managing such exposures mainly with the idea of cushioning downside outcomes and protecting the firm's credit rating, ERM helps maintain the firm's access to capital and other resources necessary to implement its strategy and business plan.At the micro level, ERM adds value by ensuring that all material risks are “owned,” and risk‐return tradeoffs carefully evaluated, by operating managers and employees throughout the firm. To this end, business unit managers at Nationwide are required to provide information about the major risks associated with all new capital projects—information that can then be used by senior management to evaluate the marginal impact of the projects on the firm's total risk. And to encourage operating managers to focus on the risk‐return tradeoffs in their own businesses, Nationwide's periodic performance evaluations of its business units attempt to reflect their contributions to total risk by assigning risk‐adjusted levels of “imputed” capital on which project managers are expected to earn adequate returns.The second, and by far the larger, part of the article provides an extensive guide to the process and major challenges that arise when implementing ERM, along with an account of Nationwide's approach to dealing with them. Among other issues, the authors discuss how a company should assess its risk “appetite,” measure how much risk it is bearing, and decide which risks to retain and which to transfer to others. Consistent with the principle of comparative advantage it uses to guide such decisions, Nationwide attempts to limit “non‐core” exposures, such as interest rate and equity risk, thereby enlarging the firm's capacity to bear the “information‐intensive, insurance‐specific” risks at the core of its business and competencies.

Пути повышения эффективности капитальных вложений в инфраструктуру с целью ее адаптации для обеспечения доступной среды

Objective: Formation of a unifi ed approach and adaptation of infrastructure facilities through the prism of rational use of capital funds and through the principle of comparative advantage based on opportunity cost. Methods: The main tools of analysis and management, the principle of comparative advantage, dynamic changes, schemes graphical models describing algorithms or processes, etc. are applied. Results: An analysis of possible ways of capital investment is carried out, with the fi nal comparability of the conditions and amounts spent on the adaptation of the main functional areas and infrastructure elements, taking into account the principles of “universal designˮ and “reasonable adaptationˮ. Practical importance: The proposed model is dynamic and can be applied as a criterion for the effectiveness of investments, both for individual investment projects and for investment programs in the full life cycle, including the operational stage.

Market forces determine the distribution of a leaky function in a simple microbial community

Many biological functions are leaky, and organisms that perform them contribute some of their products to a community "marketplace" in which nonperforming individuals may compete for them. Leaky functions are partitioned unequally in microbial communities, and the evolutionary forces determining which species perform them and which become beneficiaries are poorly understood. Here, we demonstrate that the market principle of comparative advantage determines the distribution of a leaky antibiotic resistance gene in an environment occupied by two "species"-strains of Escherichia coli growing on mutually exclusive resources and thus occupying separate niches. Communities comprised of antibiotic-resistant cells were rapidly invaded by sensitive cells of both types. While the two phenotypes coexisted stably for 500 generations, in 15/18 replicates, antibiotic sensitivity became fixed in one species. Fixation always occurred in the same species despite both species being genetically identical except for their niche-defining mutation. In the absence of antibiotic, the fitness cost of resistance was identical in both species. However, the intrinsic resistance of the species that ultimately became the sole helper was significantly lower, and thus its reward for expressing the resistance gene was higher. Opportunity cost of resistance, not absolute cost or efficiency of antibiotic removal, determined which species became the helper, consistent with the economic theory of comparative advantage. We present a model that suggests that this market-like dynamic is a general property of Black Queen systems and, in communities dependent on multiple leaky functions, could lead to the spontaneous development of an equitable and efficient division of labor.

“I profess to have made no discovery”. James Mill on comparative advantage

During recent decades, David Ricardo’s ideas on international trade have been submitted to new scrutiny. This research has led to a new understanding of the so-called ‘principle of comparative advantage’ and shown that the alleged ‘Ricardian’ model of foreign trade is based on a misunderstanding of Ricardo’s text. The present paper focuses on the role of James Mill in the creation of the Ricardian vulgate. It shows how the evolution of Mill’s thought, in part due to a didactic perspective and some difficulties raised by his numerical examples, distorted Ricardo’s approach. In Mill we find all the ingredients of what is called the ‘Ricardian’ model of foreign trade, substituting an ex-ante perspective for Ricardo’s ex-post approach.

Capacity planning with outsourcing opportunities under reliability and maintenance constraints

This paper investigates capacity planning with outsourcing under reliability-maintenance constraints. The considered supply-chain consists of a single-manufacturer and multiple-subcontractors. The manufacturer's company is composed of a single unit subject to random failures. Corrective maintenance is endorsed when failures occur, and preventive maintenance can be carried out to reduce the degradation. The high in-house costs and the incapacity motivate the manufacturer outsourcing to independent subcontractors. In addition, based on the principle of comparative advantage, the manufacturer balances between in-house capacities and outsourcing services, which minimises the total cost. The aim is to propose a new policy based on the combination between integrated-maintenance and outsourcing policies. A mathematical model and an optimisation procedure have been developed in order to determine the best in-house production-maintenance and outsourcing plans for the manufacturer while minimising the total cost. In order to show the applicability of our approach, we conduct experimentations to study the management insights.

Level Playing Fields and Rebalancing: A Comment

The most contentious and problematic issue negotiated in the Brexit deal was the so-called “level playing field”, which was to be preserved by the parties through “rebalancing” provisions. This note takes up the issue of the meaning of a “level playing field” in light of fundamental features of international trade: firm-level heterogeneity within industries; economic geography; policy heterogeneity in taxation and the provision of public goods; the principle of comparative advantage; and fluctuating national currencies. Based on this, it comments on the meaning in economic terms and practicality of “rebalancing”.

The U.S.–China trade imbalance and the theory of free trade: debunking the currency manipulation argument

ABSTRACT The U.S.–China trade imbalance is commonly attributed to a Chinese policy of currency manipulation. However, empirical studies failed to reach consensus on the RMB misalignment. We argue that this is not a consequence of poor measurement but of theory. At the most abstract level the conventional principle of comparative cost advantage suggests real exchange rates will adjust so as to balance trade. Therefore, the persistence of trade imbalances tends to be interpreted as arising from currency manipulation facilitated by foreign exchange interventions. By way of contrast, the absolute cost theory explains trade imbalances as the outcome of free trade among nations that have unequal real costs. We argue that a disparity in real costs is the root cause of the U.S.–China trade imbalance.

UNIVERSITY OF GEORGIA ROUNDTABLE ON: Enterprise‐Wide Risk Management

For many years, MBA students were taught that there was no good reason for companies that hedge large currency or commodity price exposures to have lower costs of capital, or trade at higher P/E multiples, than comparable companies that choose not to hedge such financial price risks. Corporate stockholders, just by holding well‐diversified portfolios, were said to neutralize any effects of currency and commodity price risks on corporate values. And corporate efforts to manage such risks were accordingly viewed as redundant, a waste of corporate resources on a function already performed by investors at far lower cost.But as this discussion makes clear, both the theory and the corporate practice of risk management have moved well beyond this perfect markets framework. The academics and practitioners in this roundtable begin by suggesting that the most important reason to hedge financial risks—and risk management's largest potential contribution to firm value—is to ensure a company's ability to carry out its strategic plan and investment policy. As one widely cited example, Merck's use of FX options to hedge the currency risk associated with its overseas revenues is viewed as limiting management's temptation to cut R&D in response to large currency‐related shortfalls in reported earnings.Nevertheless, one of the clear messages of the roundtable is that effective risk management has little to do with earnings management per se, and that companies that view risk management as primarily a tool for smoothing reported earnings have lost sight of its real economic function: maintaining access to low‐cost capital to fund long‐run investment. And a number of the panelists pointed out that a well‐executed risk management policy can be used to increase corporate debt capacity and, in so doing, reduce the cost of capital.Moreover, in making decisions whether to retain or transfer risks, companies should generally be guided by the principle of comparative advantage. If an outside firm or investor is willing to bear a particular risk at a lower price than the cost to the firm of managing that risk internally, then it makes sense to lay off that risk. Along with the greater efficiency and return on capital promised by such an approach, several panelists also pointed to one less tangible benefit of an enterprise‐wide risk management program—a significant improvement in the internal corporate dialogue, leading to a better understanding of all the company's risks and how they are affected by the interactions among its business units.

Domination and misframing in the refugee regime

ABSTRACT The current practices of refugee protection refugees largely leave the burdens of the refugee regime to lie where they fall. Those states which are geographically proximate to refugee-producing regions, already amongst the least advantaged, bear the bulk of these burdens. In this paper, I critically assess two proposals which seek to address this maldistribution: a market in asylum services and a principle of comparative advantage. I argue that from the standpoint of justice, these proposals share two objectionable features. First, they enable relations of domination between states, because they ignore the background relations of inequality upon which they depend for their effectiveness. Second, they institute an injustice of ‘misframing,’ in that they preclude consideration of refugees’ legitimate claims to be hosted (or not to be hosted) in a particular state. The failings of these approaches are illuminating and, I argue, provide us with some theoretical desiderata for a positive account of justice in the distribution of responsibilities to refugees.

Comparative advantage and caste evolution.

Most of the theory for the evolution of caste specialization in social insects assumes that increased efficiency in worker labor leads to specialization and increased worker efficiency gives colonies with behavioral specialists an advantage. However, there are an increasing number of studies that show that the task specialists within social insect colonies do not have the highest efficiency. Indeed, some studies show that some groups of workers are uniformly better than all other groups at every task. In this note, I adapt the principle of comparative advantage from economics to show that, rather than maximizing the payoff, specialization is advantageous when minimizing opportunity costs. This leads to the prediction that caste specialization should be associated with reduced opportunity costs rather than increased task efficiency.

Radical Trade Reform: From Industrial to Ecological Civilization

AbstractAll theories of international trade that are based on the paradigm of industrial civilization are becoming obsolete. The premises behind the principle of comparative advantage, which developed in the historical context of the early 19th century, are disappearing. Uncertainties about the future of fossil fuels, conflicts between rich and poor, global ecological fragility, and many other symptoms of system failure have revealed the flaws of industrial civilization and international trade. We examine the history of trade theory within the framework of industrial civilization. We then propose the transition to an ecological civilization, which will restore the diversity of cultures by moving away from the homogeneous world culture that globalization has begun to create. Under the conditions of ecological civilization, international trade will serve the human need to exchange the surplus of each society and to communicate with other cultures. It will cease to be a system of debt and dependence that threatens the sovereignty of most nations today.