Ricardo's Theory of Comparative Advantage: Old Idea, New Evidence

Arnaud Costinot and Dave Donaldson

No 17969, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: When asked to name one proposition in the social sciences that is both true and non-trivial, Paul Samuelson famously replied: 'Ricardo's theory of comparative advantage'. Truth, however, in Samuelson's reply refers to the fact that Ricardo's theory of comparative advantage is mathematically correct, not that it is empirically valid. The goal of this paper is to assess the empirical performance of Ricardo's ideas. We use novel agricultural data that describe the productivity in 17 crops of 1.6 million parcels of land in 55 countries around the world. Crucially, this dataset contains information about the productivity of each parcel of land in all crops, not just those that are currently being grown. This direct information about relative productivity differences across economic activities allows us to compute, for the first time, the output predicted by Ricardo's theory of comparative advantage. Despite all of the real-world considerations from which this theory abstracts, we find that Ricardo's theory of comparative advantage has significant explanatory power in the data, at least within the scope of our analysis.

JEL-codes: F11 Q11 Q15 Q17 R14 (search for similar items in EconPapers)
Date: 2012-04
New Economics Papers: this item is included in nep-hpe
Note: ITI
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Published as Arnaud Costinot & Dave Donaldson, 2012. "Ricardo's Theory of Comparative Advantage: Old Idea, New Evidence," American Economic Review, American Economic Association, vol. 102(3), pages 453-58, May.

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Journal Article: Ricardo's Theory of Comparative Advantage: Old Idea, New Evidence (2012)
Working Paper: Ricardo's Theory of Comparative Advantage: Old Idea, New Evidence (2012)
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