Theory Of Comparative Advantage Research Articles

Sustainable Rural Development Requires Value-Added Activities Linked with Comparative Advantage: The Case of the Catalan Pyrenees

Abstract In a peripheral rural area like the Pyrenees, it is necessary to promote local resources, which can be converted in value-added activities with comparative advantages in relation with other areas. The Comparative Advantage Theory and Second-Best Option (SBO) methodology are presented here. Each local territory can develop activities or services, even though there are other places that may be more suitable for them, when these are the best specialization option for this territory. The idea of SBO methodology means engaging in activities that make it possible to achieve a comparative advantage. Four cases are discussed: a) transformation of dairy products into competitive value-added commodities; b) promotion of extensive cattle farming based on local natural grass feed; c) development of value-added tourist activities linked to local landscape; and d) planning value-added cultural activities related with cultural heritage.

Why comparative advantage is a problematic guide to practical policy

AbstractPrevious criticisms of comparative advantage theory have mainly stressed the inapplicability of its theoretical assumptions. This article focuses on the dilemma involved in using it as a guide to practical policy. Since its inception, comparative advantage theory has gradually split into two schools, representing two ways of thinking and two methodologies. Economic policy based on comparative advantage may succeed in the short run but fail in the long run, because the development model based on this approach has an inherent destructive mechanism.

Comment on “Explaining virtual water trade: A spatial-temporal analysis of the comparative advantage of land, labor and water in China,” published by Zhao et al. [Water Research (2019) 153: 304-314

The virtual water hypothesis offers the reasonable proposition that if water-abundant regions export water-intensive products to water-scarce regions, the latter could devote their scarce resources instead to uses yielding higher economic returns. Zhao et al. show that trade flows in China do not adhere to this hypothesis, use the economic theory of comparative advantage to explore why, and seek a solution where both the hypothesis and the theory are apparently satisfied. However, they have not fully utilized the power of the theory: this is made evident by the fact that their calculations quantify what they call “the comparative advantage of land, labor and water,” as stated in the title of the article. This Comment describes the significance of comparative advantage for this inquiry and our comparable investigation for the regions of Mexico. It concludes with the case for a collaborative effort to situate such single-country studies in the context of a model of global comparative advantages.

Explaining virtual water trade: A spatial-temporal analysis of the comparative advantage of land, labor and water in China

The well-known “virtual water hypothesis” states that water-deficient regions/countries could alleviate water stress through importing water-intensive products from water-abundant regions/countries. Although observed trading patterns do often not support this hypothesis, there is a lack of research to explore the reasons why trade patterns often do not support the intuitive virtual water hypothesis. To fill this important gap, we introduce comparative advantage theory in a quantitative way to track the driving forces of net virtual water export based on the spatial-temporal distribution of resource productivity and opportunity costs of land, labor and water use in agricultural and non-agricultural sectors across Chinese provinces between 1995 and 2015. The results show that regional differences in land productivity between agricultural and non-agricultural sectors are the main forces determining the pattern of virtual water flows across major regions, and other resources such as labor and water have played only a limited role. Our study shows that the current market forces reflect the scarcity of land resources, but does not reflect the water scarcity in the context of interregional trade in China. Our findings suggest that the ongoing efforts to increase land productivity of agriculture in the southern regions would contribute to reducing water scarcity in the North and Northeast China Plain.

Why Ricardo’s Theory of Comparative Advantage Regarding Foreign Trade Doesn’t Work in Today’s Global Economy: Labor Arbitrage, Disloyal Capital, WTO Violations and National Security Implications

The theoretical basis for international trade is Ricardo’s theory of comparative advantage. Paul Samuelson, one of the leading lights in the economics profession in the 20th century, referred to it as one of the most beautiful ideas in economics. Yet, no one seems to have considered its validity in the context of the current global trade environment. What free-trade advocates have not done is to look at the bases underlying Ricardo’s theory, namely, that capital is loyal to the country of origin and that the value of currencies is responsive to imbalances in trade. This article demonstrates that capital is not loyal to the country of origin and that currencies do not move to smooth out imbalances in trade. This then forces us to look at the political, economic, and national security aspects of global trade, rather than just repeating the mantra that free trade benefits all. Clearly, there are winners and losers and, thus far, American workers have been the losers. The last election demonstrates that exporting jobs to countries such as China has domestic political consequences when people believe that the system is not working for them. The article then asserts we need an industrial policy for this country that seeks to benefit not just shareholders but also workers, and which recognizes the national security implications of global trade and the danger of supply chains that run through a potential adversary.

An Overview of the Key Theories of Foreign Direct Investment: The Way Forward

This paper discusses eight of the numerous theories that seek to explain why and when foreign direct investment takes place. In addition, general criteria for a good theory were provided as suggested. The main finding is that there is no single, generally accepted theory that currently satisfies all the listed criteria for a good theory or gives a satisfactory explanation about the determinants of FDI. The paper argues that a good theory of FDI should be able to explain simultaneously exporting as well as portfolio and foreign direct investments for these are basically similar activities that reflect a continuum of increasing level of involvement of the firm in international operations. The authors advise that a good starting point in developing a theory of FDI the theory of economic advantage which is static and more applicable to natural advantages such as minerals and agriculture. On the other hand, the Product Life Cycle Theory is dynamic and suggests that comparative advantage shifts from one nation to another as a product matures. Therefore, the PLC may be a good starting point in developing a theory of FDI flows associated with products that depend mainly on acquired advantages such as manufactured goods. The PLC may therefore be seen as taking over where the classical comparative advantage theory fails to explain trade and investment.

Getting a Sharper View of the Humanitarian Marketplace: Introducing Conduit Engagement Theory

Abstract There are differing views on the strengths and weaknesses of faith-based organizations relative to secular international nongovernmental organizations. This article argues that the theory of comparative advantage and the theory of organizational alignment are inadequate in helping to assess these strengths and weaknesses. The article offers a different perspective, called conduit engagement theory. It holds that humanitarian organizations naturally have specific relationships, organizational linkages, affiliations, or shared philosophies (referred to in the article as conduits) that enable certain programmatic interventions. Maximum effectiveness within the humanitarian marketplace is a function of the robustness of engagement of conduits with high-priority initiatives that have adequate funding over the necessary length of time. A new kind of tool for strategic planning within specific countries and for auditing at an organizational level are proposed.

An Error Correction Model Analysis of Indonesia’s Tourism and International Trade

The tourism sector is the mainstay of Indonesia's foreign exchange contributor. Through its affordability with various other sectors, tourism is considered to be able to influence the country's international trade through the mechanism of exports and imports. This study aims to analyze the influence of tourism on Indonesia's trade balance in the short and long term. The theory of comparative advantage and Heckscher-Ohlin are aimed to answer the purpose of this study. Using the Error Correction Model (ECM), this research shows that tourism has a positive and significant impact on exports and imports in the long and short term. However, in the long term the influence of tourism on imports is greater than that of exports. The opposite thing is happened in the short term.Keywords: tourism, international trade, Error Correction Model

A abordagem institucionalista acerca do comércio internacional em contraponto à teoria das vantagens comparativas: o sistema japonês de inovações

O presente trabalho analisa a visão institucional em relação à participação de uma nação no comercio internacional - e o impacto que as mudanças institucionais no longo prazo acabam tendo sobre a liderança tecnológica mundial - em contraponto a abordagem da Teoria das vantagens comparativas ao tratar da mesma questão. A argumentação aqui defendida, com base em uma pesquisa histórico / bibliográfica, é que a visão institucional pode dar uma resposta consistente para explicar as mudanças ocorridas nas últimas décadas na posição de países como o Japão, por exemplo, enquanto players na arena do comércio internacional em produtos de alto valor agregado. Isto ocorre devido ao fato da Economia Institucional levar em conta a diversidade de fatores que afetam o desempenho de uma nação, como por exemplo, a burocracia estatal e o investimento em educação.

Assessing State Support for the Development of International Economic Cooperation: a Case of Polish Trade Support Institutions’ Export Recommendations for Turkey

In times of increasing significance for national policies which support international economic cooperation, a special role is played by state trade support institutions (TSIs). This paper investigates whether such TSIs can be said to operate effectively, through an analysis of one essential element of the support provided to domestic entrepreneurs, namely export recommendations. The recommendations provided by Polish TSIs in respect of Turkey is employed as a case study. The theory of comparative advantage along with a neo-institutional perspective provide the conceptual framing for this analysis, in conjunction with both desk research, document analysis, and selected economic indices. Factors such as trade potential, comparative advantages, and the competitiveness of selected product groups exported by Polish firms to Turkey were also taken into account. The findings largely indicate that TSI export recommendations are adequate, and the majority of the recommended industries demonstrated considerable sales opportunities. Nevertheless, some discrepancies were also noted, which should be an issue for further investigation by both researchers and TSI analysts. Furthermore, the case study in this paper demonstrates that the choices within economic promotion policy – despite its partition between variously-oriented TSIs - were made on the basis of economic rationality.

Comparative advantage in de-globalisation

PurposeThis paper aims to examine the relevance of the theory of comparative advantage in the present realities of a world undergoing de-globalisation, that is, a retreat from closer integration.Design/methodology/approachThis paper presents eight arguments that analyse the theory as posited by Adam Smith and David Ricardo and that theory remains the underpinnings for trade liberalisation as regulated by the World Trade Organisation (WTO).FindingsThe arguments do not contend with the role and achievements of the WTO in the era of globalisation. Rather, these call for an acknowledgement of the changing realities of countries in the face of changes in the political, economic and legal landscapes, across the globe.Originality/valueThis is an original submission by the author.

The Research on International Development Path of China’s Marine Biopharmaceutical Industry

Under the backdrop of the Maritime Silk Road Initiative, the study on the international development of China’s marine biopharmaceutical industry based on factor allocation is of great practical significance for industrial sustainability and building the industry into a leading international player in the global market. In this paper, we first identify the leading factors that influence the development of the marine biopharmaceutical industry, namely, resources, technologies, talents, investments and policies. Furthermore, the hierarchical structure model of these factors was established and analyzed using the analytic hierarchy process (AHP). The importance ranking of these constraints was identified, as follows: technologies > talents > resources > policies > investments. Then, based on the theory of comparative advantage and game theory, we analyzed the necessity of China’s marine biopharmaceutical industry going global, that is, international cooperation may lay a solid foundation for the win-win outcome of this industry in countries along the Maritime Silk Road. According to the status quo of China’s marine biopharmaceutical industry, based on these findings, an international factor–allocation cooperation path was designed, and the path chart of the international development of the marine biopharmaceutical industry was drawn. Finally, methods for the development of China’s marine biopharmaceutical industry were proposed, which covers efforts to protect marine resources, promote R&D for core technologies, establish a strong talent pool, encourage more investments, provide policy support and promote worldwide cooperation. It is the first report to investigate the path of the sustainable exploitation of the marine biopharmaceutical industry from the perspective of factor allocation amidst the backdrop of the Maritime Silk Road Initiative.

Allocating Multiple Types of Tasks to Heterogeneous Agents Based on the Theory of Comparative Advantage

We present a method to allocate multiple tasks with uncertainty to heterogeneous robots using the theory of comparative advantage: an economic theory that maximizes the benefit of specialization. In real applications, robots often must execute various tasks with uncertainty and future multirobot system will have to work effectively with people as a team. As an example, it may be necessary to explore an unknown environment while executing a main task with people, such as carrying, rescue, military, or construction. The proposed task allocation method is expected to reduce the total makespan (total length of task-execution time) compared with conventional methods in robotic exploration missions. We expect that our method is also effective in terms of calculation time compared with the time-extended allocation method (based on the solution of job-shop scheduling problems). We simulated carrying tasks and exploratory tasks, which include uncertainty conditions such as unknown work environments (2 tasks and 2 robots, multiple tasks and 2 robots, 2 robots and multiple tasks, and multiple tasks and multiple robots). In addition, we compared our method with full searching and methods that maximize the sum of efficiency in these simulations by several conditions: first, 2 tasks (carrying and exploring) in the four uncertain conditions (later time, new objects appearing, disobedient robots, and shorter carrying time) and second, many types of tasks to many types of robots in the three uncertain conditions (unknown carrying time, new objects appearing, and some reasonable agents). The proposed method is also effective in three terms: the task-execution time with an increasing number of objects, uncertain increase in the number of tasks during task execution, and uncertainty agents who are disobedient to allocation orders compared to full searching and methods that maximize the sum of efficiency. Additionally, we performed two real-world experiments with uncertainty.

Complete Specialization and Government Intervention in International Trade

Despite compelling rationale based on the theory of comparative advantage for free trade, many countries adopt restrictive trade practices. In this paper we investigate this puzzle in a stylized two-country two-good Ricardian model of international trade. Governments can offer protection to domestic industries via industrial subsidy policy in this model. We prove the existence of a Nash equilibrium in the two-player game where industries choose the level of specialization. We determine the necessary conditions for complete specialization in (a) the free-trade regime; and (b) the protectionist regime implemented through industrial subsidy policy. Our results show that if the government intends to promote complete specialization, then a high degree of comparative advantage and a large elasticity of substitution between export and import goods are required. Empirical evidence on these two parameters indicate that complete specialization is unlikely to survive in the protectionist regime.

Den neoklassiske frihandelsfejlslutning

Free trade has traditionally been seen as an indisputable ‘moral law’ that benefits all trading partners and thus stimulates peaceful relations between nations. However, recent years have seen the emergence of a whole range of critical voices that articulate various types of free trade critique. The overall intention of the current paper is to discuss this tendency by reviewing Hermann Daly’s critique of the free trade argument as found in neoclassical economic theory. Daly’s argument is that neoclassical theorists on the one hand posit David Ricardo’s theory of comparative advantage as the overarching argument for free trade while on the other hand pushing through free trade arrangements in which Ricardo’s theory ceases to work. In more concrete terms: Ricardo’s theory shows that all trade partners benefit from free trade as long as capital cannot be allocated across national borders, yet current free trade agreements are representative of a neoliberal ideology that opposes all kinds of trading barriers, including national borders. On this basis, it seems reasonable to conclude that proponents of free trade use Ricardo’s argument as a strawman to build a neoliberal world economy based on absolute advantages.

The Generalization of the Comparative Advantage Theory

Economic textbooks relate the principle of comparative advantage using examples of two products and two countries, the 2x2 case. We shall suggest an approach describing any finite number of products m and countries n, the mxn case, where m>2, n>2. For this purpose the linear programming will be used

Спадщина Д. Рікардо у ХХІ столітті: теорія порівняльних переваг крізь призму історико-інституціонального аналізу

Спадщина Д. Рікардо у ХХІ столітті: теорія порівняльних переваг крізь призму історико-інституціонального аналізу

A novel method for retrieving specialisation profiles – The case of patent agent firms

IntroductionFor a broad variety of innovation intelligence tasks, like finding the patent agent being specialised in a technology, specialisation profiles of entities are of particular interest. Such a profile indicates for each entity in which activities it is markedly specialised. Conventional approaches suffer two shortcomings, though. First, they tend to consider only the activity profiles of the respective entities, while neglecting information about all other entities' activities. Second, they often lack in considering entity specific characteristics, when assigning an activity to an entity's specialisation profile or not. MethodTo address these shortcomings, we introduce the RSI-specialisation, a novel method for retrieving dichotomous and idiotypic specialisation profiles. Operationalising relative specialisation, the novel method is rooted in the theory of comparative advantage. In order to contrast it with the approaches based on absolute specialisation, it is compared with the baseline method ENF- specialisation, which has its theoretical roots in the concept of effective number of components. AnalysisBoth methods are demonstrated by applying them to the case of the specialisation of patent agent firms. RSI-specialisation and ENF-specialisation are applied to a data set containing all EPO patent applications in 2014 and 2015. ResultsCompared to the baseline approach, the RSI-specialisation reduces noise from market effects to a greater satisfaction. Besides being less dependent on agent size and market structure, it reduces interpretation to the most essential question for an applicant, i.e. why he should opt for one rather than another provider. In addition, it also guarantees that a potential applicant can find in any field a specialised patent agent firm. ConclusionWe find that the novel RSI-specialisation promises to be a robust and reliable method for retrieving dichotomous and idiotypic specialisation profiles. Patent agent firms aside, it could be applied to a multitude of different domains, like the specialisation of other professional workers, of politicians, experts in consulting firms or even to users in online-shops and patients in clinical trials.

Ricardo’s <i>Principles</i>, 200 Years Later

David Ricardo’s 1817 work, On the Principles of Political Economy, and Taxatio n ( Principles hereafter), is a classic in economics, and revised editions were published in 1819 and 1821. Unfortunately, all classics are ill-fated because they are often quoted but seldom read. Classics are revered and quotations from them adorn the walls of economics departments. Another way in which economics students learn about Ricardo is in the initial chapters of their textbooks, suggesting that these ideas were once-upon-a-time relevant, and that the current economics is an intellectual advance over Ricardo’s economics. It is in this way that his comparative advantage theory, growth theory, rent theory, and tax theory have been assimilated into various textbooks.

Trade relationship between Vietnam and Japan: Current situation and trend

Using the Comparative Advantage Theory, models to evaluate trade relationship and data of the United Nations, the study analyzes the relationship between Vietnam and Japan in the period 2001 -2015. Japan is the largest trading partner of Vietnam with trade volume steadily increasing and equal bilateral trade volumes. Results indicate that the high Vietnam – Japan trade intensity reflects the importance of Japan to Vietnam in international trade. The bilateral trade of these two countries tends to be extraindustry, to which Vietnam exports to Japan comparative advantage products such as agricultural and labor-intensive products while Japan exports to Vietnam machine, equipment and input materials. Vietnam – Japan trade relationship is projected to keep expanding owing to continuously improved bilateral political and economic relationship.