An Inframarginal Analysis of the Ricardian Model

Wenli Cheng (), Jeffrey Sachs and Xiaokai Yang

Review of International Economics, 2000, vol. 8, issue 2, pages 208-20

Abstract: This paper shows that a 2 x 2 Ricardian model has a unique general equilibrium, and the comparative statics of the equilibrium involve discontinuous jumps. If partial division of labor occurs in equilibrium, the country producing both goods would impose a tariff, whereas the country producing a single good would prefer unilateral free trade. If complete division of labor occurs in equilibrium, both countries would negotiate to achieve free trade. In a model with three countries, the country which does not have a comparative advantage relative to the other two countries, and/or which has low transaction efficiency, may be excluded from trade. Copyright 2000 by Blackwell Publishing Ltd.

Date: 2000
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