Ricardo Through the Looking Glass: (Mis)adventures of Comparative Advantage in Developing Economies

Victor Spirin

MPRA Paper from University Library of Munich, Germany

Abstract: Suppose two countries, A and B, manufacture aircraft components – engines and tires. Suppose country A has a comparative advantage in engine manufacturing, perhaps for a simple reason of being situated closer to a source of titanium which is used in fan blade manufacturing. And suppose that country B has comparative advantage in tires, perhaps because of being geographically closer to an oil resource. According to the Ricardian theory, country A should specialize in engines and country B should focus solely on tires. But suppose that a set of engines costs ten million dollars, while a set of tires, including all replacement tires needed over the service life on an aircraft, costs less than one hundred thousand. Will country B benefit from this Ricardian specialization? We aim to provide the simplest possible two-country two-commodity model with the smallest possible set of assumptions, that shows that the specialization does not always benefit all trade participants. Instead, one of the participants may get a disproportionate benefit from trade at the expense of the other.

Keywords: Comparative Advantage; Developing Economies (search for similar items in EconPapers)
JEL-codes: F6 F62 F63 (search for similar items in EconPapers)
Date: 2021-05-17
New Economics Papers: this item is included in nep-int and nep-pke
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Citations: View citations in EconPapers (6)

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https://mpra.ub.uni-muenchen.de/110363/1/MPRA_paper_110363.pdf revised version (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:107780

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