Classical models of comparative advantage and their relevance today

Peter M. Morrow

Chapter 4 in Elgar Encyclopedia of International Trade, 2026, pp 17-20 from Edward Elgar Publishing

Abstract: Classical models of comparative advantage are meant to be intuitively appealing. However, in an effort to be intuitively appealing, these models often make simplifying assumptions at odds with reality. In response, modern models of comparative advantage borrow elements of imperfect competition or rely on probabilistic predictions. Examples include the quasi-HO predictions of Romalis (2004) and the probabilistic formulations of Eaton and Kortum (2002). These modern formulations have also popularized structural counterfactual analysis, which advances the methods introduced in the 1980s by computable general equilibrium models. These models allow for rigorous analysis of issues including how incomplete contracts, financial fragility, and labor market imperfections affect trade and how trade can or cannot mitigate the effects of climate change.

Keywords: Comparative Advantage; Ricardian; Heckscher-Ohlin; Eaton-Kortum (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035327492
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