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href="#Terms_of_trade"> <div class="vector-toc-text"> <span class="vector-toc-numb">1.3</span> <span>Terms of trade</span> </div> </a> <ul id="toc-Terms_of_trade-sublist" class="vector-toc-list"> </ul> </li> </ul> </li> <li id="toc-Haberler's_opportunity_costs_formulation" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#Haberler's_opportunity_costs_formulation"> <div class="vector-toc-text"> <span class="vector-toc-numb">2</span> <span>Haberler's opportunity costs formulation</span> </div> </a> <ul id="toc-Haberler's_opportunity_costs_formulation-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Modern_theories" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#Modern_theories"> <div class="vector-toc-text"> <span class="vector-toc-numb">3</span> <span>Modern theories</span> </div> </a> <button aria-controls="toc-Modern_theories-sublist" 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<span>Deardorff's general law of comparative advantage</span> </div> </a> <ul id="toc-Deardorff's_general_law_of_comparative_advantage-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Alternative_approaches" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Alternative_approaches"> <div class="vector-toc-text"> <span class="vector-toc-numb">3.3</span> <span>Alternative approaches</span> </div> </a> <ul id="toc-Alternative_approaches-sublist" class="vector-toc-list"> </ul> </li> </ul> </li> <li id="toc-Empirical_approach_to_comparative_advantage" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#Empirical_approach_to_comparative_advantage"> <div class="vector-toc-text"> <span class="vector-toc-numb">4</span> <span>Empirical approach to comparative advantage</span> </div> </a> <button aria-controls="toc-Empirical_approach_to_comparative_advantage-sublist" class="cdx-button cdx-button--weight-quiet cdx-button--icon-only vector-toc-toggle"> <span class="vector-icon mw-ui-icon-wikimedia-expand"></span> <span>Toggle Empirical approach to comparative advantage subsection</span> </button> <ul id="toc-Empirical_approach_to_comparative_advantage-sublist" class="vector-toc-list"> <li id="toc-Direct_test:_natural_experiment_of_Japan" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Direct_test:_natural_experiment_of_Japan"> <div class="vector-toc-text"> <span class="vector-toc-numb">4.1</span> <span>Direct test: natural experiment of Japan</span> </div> </a> <ul id="toc-Direct_test:_natural_experiment_of_Japan-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Structural_estimation" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Structural_estimation"> <div class="vector-toc-text"> <span class="vector-toc-numb">4.2</span> <span>Structural estimation</span> </div> </a> <ul id="toc-Structural_estimation-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Earlier_empirical_work" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Earlier_empirical_work"> <div class="vector-toc-text"> <span class="vector-toc-numb">4.3</span> <span>Earlier empirical work</span> </div> </a> <ul id="toc-Earlier_empirical_work-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Criticism" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Criticism"> <div class="vector-toc-text"> <span class="vector-toc-numb">4.4</span> <span>Criticism</span> </div> </a> <ul id="toc-Criticism-sublist" class="vector-toc-list"> </ul> </li> </ul> </li> <li id="toc-See_also" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#See_also"> <div class="vector-toc-text"> <span class="vector-toc-numb">5</span> <span>See also</span> </div> </a> <ul id="toc-See_also-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-References" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#References"> <div class="vector-toc-text"> <span class="vector-toc-numb">6</span> <span>References</span> </div> </a> <ul id="toc-References-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Bibliography" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#Bibliography"> <div class="vector-toc-text"> <span class="vector-toc-numb">7</span> <span>Bibliography</span> </div> </a> <ul id="toc-Bibliography-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-External_links" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#External_links"> <div class="vector-toc-text"> <span class="vector-toc-numb">8</span> <span>External links</span> </div> </a> <ul id="toc-External_links-sublist" class="vector-toc-list"> </ul> </li> </ul> </div> </div> </nav> </div> </div> <div class="mw-content-container"> <main id="content" class="mw-body"> <header class="mw-body-header vector-page-titlebar"> <nav aria-label="Contents" class="vector-toc-landmark"> <div id="vector-page-titlebar-toc" class="vector-dropdown vector-page-titlebar-toc vector-button-flush-left" > <input type="checkbox" id="vector-page-titlebar-toc-checkbox" role="button" aria-haspopup="true" data-event-name="ui.dropdown-vector-page-titlebar-toc" class="vector-dropdown-checkbox " aria-label="Toggle the table of contents" > <label id="vector-page-titlebar-toc-label" for="vector-page-titlebar-toc-checkbox" class="vector-dropdown-label cdx-button cdx-button--fake-button cdx-button--fake-button--enabled cdx-button--weight-quiet cdx-button--icon-only " aria-hidden="true" ><span class="vector-icon mw-ui-icon-listBullet mw-ui-icon-wikimedia-listBullet"></span> <span class="vector-dropdown-label-text">Toggle the table of contents</span> </label> <div class="vector-dropdown-content"> <div id="vector-page-titlebar-toc-unpinned-container" class="vector-unpinned-container"> </div> </div> </div> </nav> <h1 id="firstHeading" class="firstHeading mw-first-heading"><span class="mw-page-title-main">Comparative advantage</span></h1> <div id="p-lang-btn" class="vector-dropdown mw-portlet mw-portlet-lang" > <input type="checkbox" id="p-lang-btn-checkbox" role="button" aria-haspopup="true" data-event-name="ui.dropdown-p-lang-btn" class="vector-dropdown-checkbox mw-interlanguage-selector" aria-label="Go to an article in another language. Available in 44 languages" > <label id="p-lang-btn-label" for="p-lang-btn-checkbox" class="vector-dropdown-label cdx-button cdx-button--fake-button cdx-button--fake-button--enabled cdx-button--weight-quiet cdx-button--action-progressive mw-portlet-lang-heading-44" aria-hidden="true" ><span class="vector-icon mw-ui-icon-language-progressive mw-ui-icon-wikimedia-language-progressive"></span> <span class="vector-dropdown-label-text">44 languages</span> </label> <div class="vector-dropdown-content"> <div class="vector-menu-content"> <ul class="vector-menu-content-list"> <li class="interlanguage-link interwiki-ar mw-list-item"><a href="https://ar.wikipedia.org/wiki/%D8%A3%D9%81%D8%B6%D9%84%D9%8A%D8%A9_%D9%85%D9%82%D8%A7%D8%B1%D9%86%D8%A9" title="أفضلية مقارنة – Arabic" lang="ar" hreflang="ar" data-title="أفضلية مقارنة" data-language-autonym="العربية" data-language-local-name="Arabic" class="interlanguage-link-target"><span>العربية</span></a></li><li class="interlanguage-link interwiki-az mw-list-item"><a href="https://az.wikipedia.org/wiki/M%C3%BCqayis%C9%99li_%C3%BCst%C3%BCnl%C3%BCk" title="Müqayisəli üstünlük – Azerbaijani" lang="az" hreflang="az" data-title="Müqayisəli üstünlük" data-language-autonym="Azərbaycanca" data-language-local-name="Azerbaijani" class="interlanguage-link-target"><span>Azərbaycanca</span></a></li><li class="interlanguage-link interwiki-bg mw-list-item"><a href="https://bg.wikipedia.org/wiki/%D0%A1%D1%80%D0%B0%D0%B2%D0%BD%D0%B8%D1%82%D0%B5%D0%BB%D0%BD%D0%BE_%D0%BF%D1%80%D0%B5%D0%B4%D0%B8%D0%BC%D1%81%D1%82%D0%B2%D0%BE" title="Сравнително предимство – Bulgarian" lang="bg" hreflang="bg" data-title="Сравнително предимство" data-language-autonym="Български" data-language-local-name="Bulgarian" class="interlanguage-link-target"><span>Български</span></a></li><li class="interlanguage-link interwiki-ca mw-list-item"><a href="https://ca.wikipedia.org/wiki/Avantatge_comparatiu" title="Avantatge comparatiu – Catalan" lang="ca" hreflang="ca" data-title="Avantatge comparatiu" data-language-autonym="Català" data-language-local-name="Catalan" class="interlanguage-link-target"><span>Català</span></a></li><li class="interlanguage-link interwiki-cs mw-list-item"><a href="https://cs.wikipedia.org/wiki/Komparativn%C3%AD_v%C3%BDhoda" title="Komparativní výhoda – Czech" lang="cs" hreflang="cs" data-title="Komparativní výhoda" data-language-autonym="Čeština" data-language-local-name="Czech" class="interlanguage-link-target"><span>Čeština</span></a></li><li class="interlanguage-link interwiki-da mw-list-item"><a href="https://da.wikipedia.org/wiki/Komparativ_fordel" title="Komparativ fordel – Danish" lang="da" hreflang="da" data-title="Komparativ fordel" data-language-autonym="Dansk" data-language-local-name="Danish" class="interlanguage-link-target"><span>Dansk</span></a></li><li class="interlanguage-link interwiki-de mw-list-item"><a href="https://de.wikipedia.org/wiki/Komparativer_Kostenvorteil" title="Komparativer Kostenvorteil – German" lang="de" hreflang="de" data-title="Komparativer Kostenvorteil" data-language-autonym="Deutsch" data-language-local-name="German" class="interlanguage-link-target"><span>Deutsch</span></a></li><li class="interlanguage-link interwiki-et mw-list-item"><a href="https://et.wikipedia.org/wiki/Suhtelise_eelise_teooria" title="Suhtelise eelise teooria – Estonian" lang="et" hreflang="et" data-title="Suhtelise eelise teooria" data-language-autonym="Eesti" data-language-local-name="Estonian" class="interlanguage-link-target"><span>Eesti</span></a></li><li class="interlanguage-link interwiki-es mw-list-item"><a href="https://es.wikipedia.org/wiki/Ventaja_comparativa" title="Ventaja comparativa – Spanish" lang="es" hreflang="es" data-title="Ventaja comparativa" data-language-autonym="Español" data-language-local-name="Spanish" class="interlanguage-link-target"><span>Español</span></a></li><li class="interlanguage-link interwiki-eo mw-list-item"><a href="https://eo.wikipedia.org/wiki/Kompara_avanta%C4%9Do" title="Kompara avantaĝo – Esperanto" lang="eo" hreflang="eo" data-title="Kompara avantaĝo" data-language-autonym="Esperanto" data-language-local-name="Esperanto" class="interlanguage-link-target"><span>Esperanto</span></a></li><li class="interlanguage-link interwiki-eu mw-list-item"><a href="https://eu.wikipedia.org/wiki/Abantaila_konparatibo" title="Abantaila konparatibo – Basque" lang="eu" hreflang="eu" data-title="Abantaila konparatibo" data-language-autonym="Euskara" data-language-local-name="Basque" class="interlanguage-link-target"><span>Euskara</span></a></li><li class="interlanguage-link interwiki-fa mw-list-item"><a href="https://fa.wikipedia.org/wiki/%D9%85%D8%B2%DB%8C%D8%AA_%D9%86%D8%B3%D8%A8%DB%8C" title="مزیت نسبی – Persian" lang="fa" hreflang="fa" data-title="مزیت نسبی" data-language-autonym="فارسی" data-language-local-name="Persian" class="interlanguage-link-target"><span>فارسی</span></a></li><li class="interlanguage-link interwiki-fr badge-Q17437796 badge-featuredarticle mw-list-item" title="featured article badge"><a href="https://fr.wikipedia.org/wiki/Avantage_comparatif" title="Avantage comparatif – French" lang="fr" hreflang="fr" data-title="Avantage comparatif" data-language-autonym="Français" data-language-local-name="French" class="interlanguage-link-target"><span>Français</span></a></li><li class="interlanguage-link interwiki-ga mw-list-item"><a href="https://ga.wikipedia.org/wiki/Bunt%C3%A1iste_compar%C3%A1ideach" title="Buntáiste comparáideach – Irish" lang="ga" hreflang="ga" data-title="Buntáiste comparáideach" data-language-autonym="Gaeilge" data-language-local-name="Irish" class="interlanguage-link-target"><span>Gaeilge</span></a></li><li class="interlanguage-link interwiki-ko mw-list-item"><a href="https://ko.wikipedia.org/wiki/%EB%B9%84%EA%B5%90_%EC%9A%B0%EC%9C%84" title="비교 우위 – Korean" lang="ko" hreflang="ko" data-title="비교 우위" data-language-autonym="한국어" data-language-local-name="Korean" class="interlanguage-link-target"><span>한국어</span></a></li><li class="interlanguage-link interwiki-hy mw-list-item"><a href="https://hy.wikipedia.org/wiki/%D5%80%D5%A1%D5%B4%D5%A5%D5%B4%D5%A1%D5%BF%D5%A1%D5%AF%D5%A1%D5%B6_%D5%A1%D5%BC%D5%A1%D5%BE%D5%A5%D5%AC%D5%B8%D6%82%D5%A9%D5%B5%D5%B8%D6%82%D5%B6" title="Համեմատական առավելություն – Armenian" lang="hy" hreflang="hy" data-title="Համեմատական առավելություն" data-language-autonym="Հայերեն" data-language-local-name="Armenian" class="interlanguage-link-target"><span>Հայերեն</span></a></li><li class="interlanguage-link interwiki-hi mw-list-item"><a href="https://hi.wikipedia.org/wiki/%E0%A4%A4%E0%A5%81%E0%A4%B2%E0%A4%A8%E0%A4%BE%E0%A4%A4%E0%A5%8D%E0%A4%AE%E0%A4%95_%E0%A4%B8%E0%A5%81%E0%A4%B2%E0%A4%BE%E0%A4%AD" title="तुलनात्मक सुलाभ – Hindi" lang="hi" hreflang="hi" data-title="तुलनात्मक सुलाभ" data-language-autonym="हिन्दी" data-language-local-name="Hindi" class="interlanguage-link-target"><span>हिन्दी</span></a></li><li class="interlanguage-link interwiki-id mw-list-item"><a href="https://id.wikipedia.org/wiki/Teori_keunggulan_komparatif" title="Teori keunggulan komparatif – Indonesian" lang="id" hreflang="id" data-title="Teori keunggulan komparatif" data-language-autonym="Bahasa Indonesia" data-language-local-name="Indonesian" class="interlanguage-link-target"><span>Bahasa Indonesia</span></a></li><li class="interlanguage-link interwiki-it mw-list-item"><a href="https://it.wikipedia.org/wiki/Teoria_dei_vantaggi_comparati" title="Teoria dei vantaggi comparati – Italian" lang="it" hreflang="it" data-title="Teoria dei vantaggi comparati" data-language-autonym="Italiano" data-language-local-name="Italian" class="interlanguage-link-target"><span>Italiano</span></a></li><li class="interlanguage-link interwiki-he mw-list-item"><a href="https://he.wikipedia.org/wiki/%D7%99%D7%AA%D7%A8%D7%95%D7%9F_%D7%99%D7%97%D7%A1%D7%99" title="יתרון יחסי – Hebrew" lang="he" hreflang="he" data-title="יתרון יחסי" data-language-autonym="עברית" data-language-local-name="Hebrew" class="interlanguage-link-target"><span>עברית</span></a></li><li class="interlanguage-link interwiki-ka mw-list-item"><a href="https://ka.wikipedia.org/wiki/%E1%83%A8%E1%83%94%E1%83%93%E1%83%90%E1%83%A0%E1%83%94%E1%83%91%E1%83%98%E1%83%97%E1%83%98_%E1%83%A3%E1%83%9E%E1%83%98%E1%83%A0%E1%83%90%E1%83%A2%E1%83%94%E1%83%A1%E1%83%9D%E1%83%91%E1%83%98%E1%83%A1_%E1%83%97%E1%83%94%E1%83%9D%E1%83%A0%E1%83%98%E1%83%90" title="შედარებითი უპირატესობის თეორია – Georgian" lang="ka" hreflang="ka" data-title="შედარებითი უპირატესობის თეორია" data-language-autonym="ქართული" data-language-local-name="Georgian" class="interlanguage-link-target"><span>ქართული</span></a></li><li class="interlanguage-link interwiki-kk mw-list-item"><a href="https://kk.wikipedia.org/wiki/%D0%A1%D0%B0%D0%BB%D1%8B%D1%81%D1%82%D1%8B%D1%80%D0%BC%D0%B0%D0%BB%D1%8B_%D0%B1%D0%B0%D1%81%D1%8B%D0%BC%D0%B4%D1%8B%D0%BB%D1%8B%D2%9B%D1%82%D0%B0%D1%80_%D1%82%D0%B5%D0%BE%D1%80%D0%B8%D1%8F%D1%81%D1%8B" title="Салыстырмалы басымдылықтар теориясы – Kazakh" lang="kk" hreflang="kk" data-title="Салыстырмалы басымдылықтар теориясы" data-language-autonym="Қазақша" data-language-local-name="Kazakh" class="interlanguage-link-target"><span>Қазақша</span></a></li><li class="interlanguage-link interwiki-lo mw-list-item"><a href="https://lo.wikipedia.org/wiki/%E0%BA%84%E0%BA%A7%E0%BA%B2%E0%BA%A1%E0%BB%84%E0%BA%94%E0%BB%89%E0%BA%9B%E0%BA%BD%E0%BA%9A%E0%BA%97%E0%BA%BD%E0%BA%9A%E0%BA%96%E0%BA%B2%E0%BA%99" title="ຄວາມໄດ້ປຽບທຽບຖານ – Lao" lang="lo" hreflang="lo" data-title="ຄວາມໄດ້ປຽບທຽບຖານ" data-language-autonym="ລາວ" data-language-local-name="Lao" class="interlanguage-link-target"><span>ລາວ</span></a></li><li class="interlanguage-link interwiki-lv mw-list-item"><a href="https://lv.wikipedia.org/wiki/Sal%C4%ABdzino%C5%A1%C4%81_priek%C5%A1roc%C4%ABba" title="Salīdzinošā priekšrocība – Latvian" lang="lv" hreflang="lv" data-title="Salīdzinošā priekšrocība" data-language-autonym="Latviešu" data-language-local-name="Latvian" class="interlanguage-link-target"><span>Latviešu</span></a></li><li class="interlanguage-link interwiki-hu mw-list-item"><a href="https://hu.wikipedia.org/wiki/Komparat%C3%ADv_el%C5%91ny%C3%B6k_modellje" title="Komparatív előnyök modellje – Hungarian" lang="hu" hreflang="hu" data-title="Komparatív előnyök modellje" data-language-autonym="Magyar" data-language-local-name="Hungarian" class="interlanguage-link-target"><span>Magyar</span></a></li><li class="interlanguage-link interwiki-mk mw-list-item"><a href="https://mk.wikipedia.org/wiki/%D0%A2%D0%B5%D0%BE%D1%80%D0%B8%D1%98%D0%B0_%D0%BD%D0%B0_%D0%BA%D0%BE%D0%BC%D0%BF%D0%B0%D1%80%D0%B0%D1%82%D0%B8%D0%B2%D0%BD%D0%B8_%D0%BF%D1%80%D0%B5%D0%B4%D0%BD%D0%BE%D1%81%D1%82%D0%B8" title="Теорија на компаративни предности – Macedonian" lang="mk" hreflang="mk" data-title="Теорија на компаративни предности" data-language-autonym="Македонски" data-language-local-name="Macedonian" class="interlanguage-link-target"><span>Македонски</span></a></li><li class="interlanguage-link interwiki-nl mw-list-item"><a href="https://nl.wikipedia.org/wiki/Comparatief_voordeel" title="Comparatief voordeel – Dutch" lang="nl" hreflang="nl" data-title="Comparatief voordeel" data-language-autonym="Nederlands" data-language-local-name="Dutch" class="interlanguage-link-target"><span>Nederlands</span></a></li><li class="interlanguage-link interwiki-ja mw-list-item"><a href="https://ja.wikipedia.org/wiki/%E6%AF%94%E8%BC%83%E5%84%AA%E4%BD%8D" title="比較優位 – Japanese" lang="ja" hreflang="ja" data-title="比較優位" data-language-autonym="日本語" data-language-local-name="Japanese" class="interlanguage-link-target"><span>日本語</span></a></li><li class="interlanguage-link interwiki-no mw-list-item"><a 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searchaux" style="display:none">Lower relative opportunity cost in producing a good</div> <p><b>Comparative advantage</b> in an <a href="/wiki/Economic_model" title="Economic model">economic model</a> is the advantage over others in producing a particular <a href="/wiki/Goods_(economics)" class="mw-redirect" title="Goods (economics)">good</a>. A good can be produced at a lower relative <a href="/wiki/Opportunity_cost" title="Opportunity cost">opportunity cost</a> or <a href="/wiki/Autarky" title="Autarky">autarky</a> price, i.e. at a lower relative <a href="/wiki/Marginal_cost" title="Marginal cost">marginal cost</a> prior to trade.<sup id="cite_ref-uslabor_1-0" class="reference"><a href="#cite_note-uslabor-1"><span class="cite-bracket">[</span>1<span class="cite-bracket">]</span></a></sup> Comparative advantage describes the economic reality of the <a href="/wiki/Gains_from_trade" title="Gains from trade">gains from trade</a> for individuals, firms, or nations, which arise from differences in their <a href="/wiki/Factor_endowments" class="mw-redirect" title="Factor endowments">factor endowments</a> or technological progress.<sup id="cite_ref-2" class="reference"><a href="#cite_note-2"><span class="cite-bracket">[</span>2<span class="cite-bracket">]</span></a></sup> </p><p><a href="/wiki/David_Ricardo" title="David Ricardo">David Ricardo</a> developed the classical theory of comparative advantage in 1817 to explain why countries engage in <a href="/wiki/International_trade" title="International trade">international trade</a> even when one country's workers are more efficient at producing <i>every</i> single good than workers in other countries. He demonstrated that if two countries capable of producing two commodities engage in the <a href="/wiki/Free_market" title="Free market">free market</a> (albeit with the assumption that the capital and labour do not move internationally<sup id="cite_ref-3" class="reference"><a href="#cite_note-3"><span class="cite-bracket">[</span>3<span class="cite-bracket">]</span></a></sup>), then each country will increase its overall consumption by exporting the good for which it has a comparative advantage while importing the other good, provided that there exist differences in <a href="/wiki/Labor_productivity" class="mw-redirect" title="Labor productivity">labor productivity</a> between both countries.<sup id="cite_ref-4" class="reference"><a href="#cite_note-4"><span class="cite-bracket">[</span>4<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-econbook_5-0" class="reference"><a href="#cite_note-econbook-5"><span class="cite-bracket">[</span>5<span class="cite-bracket">]</span></a></sup> Widely regarded as one of the most powerful<sup id="cite_ref-6" class="reference"><a href="#cite_note-6"><span class="cite-bracket">[</span>6<span class="cite-bracket">]</span></a></sup> yet counter-intuitive<sup id="cite_ref-krugman_ricardo_7-0" class="reference"><a href="#cite_note-krugman_ricardo-7"><span class="cite-bracket">[</span>7<span class="cite-bracket">]</span></a></sup> insights in economics, Ricardo's theory implies that comparative advantage rather than <a href="/wiki/Absolute_advantage" title="Absolute advantage">absolute advantage</a> is responsible for much of international trade. </p> <meta property="mw:PageProp/toc" /> <div class="mw-heading mw-heading2"><h2 id="Classical_theory_and_David_Ricardo's_formulation"><span id="Classical_theory_and_David_Ricardo.27s_formulation"></span>Classical theory and David Ricardo's formulation</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Comparative_advantage&action=edit&section=1" title="Edit section: Classical theory and David Ricardo's formulation"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <style data-mw-deduplicate="TemplateStyles:r1251242444">.mw-parser-output .ambox{border:1px solid #a2a9b1;border-left:10px solid #36c;background-color:#fbfbfb;box-sizing:border-box}.mw-parser-output .ambox+link+.ambox,.mw-parser-output .ambox+link+style+.ambox,.mw-parser-output .ambox+link+link+.ambox,.mw-parser-output .ambox+.mw-empty-elt+link+.ambox,.mw-parser-output .ambox+.mw-empty-elt+link+style+.ambox,.mw-parser-output .ambox+.mw-empty-elt+link+link+.ambox{margin-top:-1px}html body.mediawiki .mw-parser-output .ambox.mbox-small-left{margin:4px 1em 4px 0;overflow:hidden;width:238px;border-collapse:collapse;font-size:88%;line-height:1.25em}.mw-parser-output .ambox-speedy{border-left:10px solid #b32424;background-color:#fee7e6}.mw-parser-output .ambox-delete{border-left:10px solid #b32424}.mw-parser-output .ambox-content{border-left:10px solid #f28500}.mw-parser-output .ambox-style{border-left:10px solid #fc3}.mw-parser-output .ambox-move{border-left:10px solid #9932cc}.mw-parser-output .ambox-protection{border-left:10px solid #a2a9b1}.mw-parser-output .ambox .mbox-text{border:none;padding:0.25em 0.5em;width:100%}.mw-parser-output .ambox .mbox-image{border:none;padding:2px 0 2px 0.5em;text-align:center}.mw-parser-output .ambox .mbox-imageright{border:none;padding:2px 0.5em 2px 0;text-align:center}.mw-parser-output .ambox .mbox-empty-cell{border:none;padding:0;width:1px}.mw-parser-output .ambox .mbox-image-div{width:52px}@media(min-width:720px){.mw-parser-output .ambox{margin:0 10%}}@media print{body.ns-0 .mw-parser-output .ambox{display:none!important}}</style><table class="box-More_citations_needed plainlinks metadata ambox ambox-content ambox-Refimprove" role="presentation"><tbody><tr><td class="mbox-image"><div class="mbox-image-div"><span typeof="mw:File"><a href="/wiki/File:Question_book-new.svg" class="mw-file-description"><img alt="" src="//upload.wikimedia.org/wikipedia/en/thumb/9/99/Question_book-new.svg/50px-Question_book-new.svg.png" decoding="async" width="50" height="39" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/en/thumb/9/99/Question_book-new.svg/75px-Question_book-new.svg.png 1.5x, //upload.wikimedia.org/wikipedia/en/thumb/9/99/Question_book-new.svg/100px-Question_book-new.svg.png 2x" data-file-width="512" data-file-height="399" /></a></span></div></td><td class="mbox-text"><div class="mbox-text-span">This section <b>needs additional citations for <a href="/wiki/Wikipedia:Verifiability" title="Wikipedia:Verifiability">verification</a></b>.<span class="hide-when-compact"> Please help <a href="/wiki/Special:EditPage/Comparative_advantage" title="Special:EditPage/Comparative advantage">improve this article</a> by <a href="/wiki/Help:Referencing_for_beginners" title="Help:Referencing for beginners">adding citations to reliable sources</a> in this section. Unsourced material may be challenged and removed.<br /><small><span class="plainlinks"><i>Find sources:</i> <a rel="nofollow" class="external text" href="https://www.google.com/search?as_eq=wikipedia&q=%22Comparative+advantage%22">"Comparative advantage"</a> – <a rel="nofollow" class="external text" href="https://www.google.com/search?tbm=nws&q=%22Comparative+advantage%22+-wikipedia&tbs=ar:1">news</a> <b>·</b> <a rel="nofollow" class="external text" href="https://www.google.com/search?&q=%22Comparative+advantage%22&tbs=bkt:s&tbm=bks">newspapers</a> <b>·</b> <a rel="nofollow" class="external text" href="https://www.google.com/search?tbs=bks:1&q=%22Comparative+advantage%22+-wikipedia">books</a> <b>·</b> <a rel="nofollow" class="external text" href="https://scholar.google.com/scholar?q=%22Comparative+advantage%22">scholar</a> <b>·</b> <a rel="nofollow" class="external text" href="https://www.jstor.org/action/doBasicSearch?Query=%22Comparative+advantage%22&acc=on&wc=on">JSTOR</a></span></small></span> <span class="date-container"><i>(<span class="date">July 2021</span>)</i></span><span class="hide-when-compact"><i> (<small><a href="/wiki/Help:Maintenance_template_removal" title="Help:Maintenance template removal">Learn how and when to remove this message</a></small>)</i></span></div></td></tr></tbody></table> <p><a href="/wiki/Adam_Smith" title="Adam Smith">Adam Smith</a> first alluded to the concept of <i>absolute advantage</i> as the basis for international trade in 1776, in <i><a href="/wiki/The_Wealth_of_Nations" title="The Wealth of Nations">The Wealth of Nations</a></i>: </p> <style data-mw-deduplicate="TemplateStyles:r1244412712">.mw-parser-output .templatequote{overflow:hidden;margin:1em 0;padding:0 32px}.mw-parser-output .templatequotecite{line-height:1.5em;text-align:left;margin-top:0}@media(min-width:500px){.mw-parser-output .templatequotecite{padding-left:1.6em}}</style><blockquote class="templatequote"><p>If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it off them with some part of the produce of our own industry employed in a way in which we have some advantage. The general industry of the country, being always in proportion to the capital which employs it, will not thereby be diminished [...] but only left to find out the way in which it can be employed with the greatest advantage.<sup id="cite_ref-8" class="reference"><a href="#cite_note-8"><span class="cite-bracket">[</span>8<span class="cite-bracket">]</span></a></sup></p></blockquote> <p>Writing several decades after Smith in 1808, <a href="/wiki/Robert_Torrens_(economist)" title="Robert Torrens (economist)">Robert Torrens</a> articulated a preliminary definition of comparative advantage as the loss from the closing of trade: </p> <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1244412712"><blockquote class="templatequote"><p>[I]f I wish to know the extent of the advantage, which arises to England, from her giving France a hundred pounds of <a href="/wiki/Broadcloth" title="Broadcloth">broadcloth</a>, in exchange for a hundred pounds of lace, I take the quantity of lace which she has acquired by this transaction, and compare it with the quantity which she might, at the same expense of labour and capital, have acquired by manufacturing it at home. The lace that remains, beyond what the labour and capital employed on the cloth, might have fabricated at home, is the amount of the advantage which England derives from the exchange.<sup id="cite_ref-9" class="reference"><a href="#cite_note-9"><span class="cite-bracket">[</span>9<span class="cite-bracket">]</span></a></sup></p></blockquote> <p>In 1814 the anonymously published pamphlet <i>Considerations on the Importation of Foreign Corn</i> featured the earliest recorded formulation of the concept of comparative advantage.<sup id="cite_ref-ThompsonAllington2010_10-0" class="reference"><a href="#cite_note-ThompsonAllington2010-10"><span class="cite-bracket">[</span>10<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-SengaFujimotoTabuchi2017_11-0" class="reference"><a href="#cite_note-SengaFujimotoTabuchi2017-11"><span class="cite-bracket">[</span>11<span class="cite-bracket">]</span></a></sup> Torrens would later publish his work <i>External Corn Trade</i> in 1815 acknowledging this pamphlet author's priority.<sup id="cite_ref-ThompsonAllington2010_10-1" class="reference"><a href="#cite_note-ThompsonAllington2010-10"><span class="cite-bracket">[</span>10<span class="cite-bracket">]</span></a></sup> </p> <figure class="mw-halign-right" typeof="mw:File/Thumb"><a href="/wiki/File:David_ricardo.jpg" class="mw-file-description"><img src="//upload.wikimedia.org/wikipedia/commons/thumb/8/8d/David_ricardo.jpg/150px-David_ricardo.jpg" decoding="async" width="150" height="167" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/commons/thumb/8/8d/David_ricardo.jpg/225px-David_ricardo.jpg 1.5x, //upload.wikimedia.org/wikipedia/commons/thumb/8/8d/David_ricardo.jpg/300px-David_ricardo.jpg 2x" data-file-width="363" data-file-height="405" /></a><figcaption>David Ricardo</figcaption></figure> <p>In 1817, <a href="/wiki/David_Ricardo" title="David Ricardo">David Ricardo</a> published what has since become known as the theory of comparative advantage in his book <i><a href="/wiki/On_the_Principles_of_Political_Economy_and_Taxation" title="On the Principles of Political Economy and Taxation">On the Principles of Political Economy and Taxation</a></i>. </p> <div class="mw-heading mw-heading3"><h3 id="Ricardo's_example"><span id="Ricardo.27s_example"></span>Ricardo's example</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Comparative_advantage&action=edit&section=2" title="Edit section: Ricardo's example"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <figure class="mw-default-size" typeof="mw:File/Thumb"><a href="/wiki/File:Ricardo_example_of_comparative_advantage.svg" class="mw-file-description"><img src="//upload.wikimedia.org/wikipedia/commons/thumb/3/3c/Ricardo_example_of_comparative_advantage.svg/220px-Ricardo_example_of_comparative_advantage.svg.png" decoding="async" width="220" height="220" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/commons/thumb/3/3c/Ricardo_example_of_comparative_advantage.svg/330px-Ricardo_example_of_comparative_advantage.svg.png 1.5x, //upload.wikimedia.org/wikipedia/commons/thumb/3/3c/Ricardo_example_of_comparative_advantage.svg/440px-Ricardo_example_of_comparative_advantage.svg.png 2x" data-file-width="512" data-file-height="512" /></a><figcaption>Graph illustrating Ricardo's example:<br />In case I (diamonds), each country spends 3600 hours to produce a mixture of cloth and wine.<br />In case II (squares), each country specializes in its comparative advantage, resulting in greater total output.</figcaption></figure> <p>In a famous example, Ricardo considers a <a href="/wiki/World_economy" title="World economy">world economy</a> consisting of two countries, <a href="/wiki/Portugal" title="Portugal">Portugal</a> and <a href="/wiki/England" title="England">England</a>, each producing two goods of identical quality. In Portugal, the <i><a href="/wiki/A_priori_and_a_posteriori" title="A priori and a posteriori">a priori</a></i> more efficient country, it is possible to produce <a href="/wiki/Wine" title="Wine">wine</a> and <a href="/wiki/Cloth" class="mw-redirect" title="Cloth">cloth</a> with less labor than it would take to produce the same quantities in England. However, the relative costs or ranking of cost of producing those two goods differ between the countries. </p> <table class="wikitable"> <caption>Hours of work necessary to produce one unit </caption> <tbody><tr> <th style="background:#EAECF0;background:linear-gradient(to top right,#EAECF0 49%,#AAA 49.5%,#AAA 50.5%,#EAECF0 51%);line-height:1.2;padding:0.1em 0.4em;"><div style="margin-left:2em;text-align:right">Produce</div><div style="margin-right:2em;text-align:left">Country</div> </th> <th scope="col">Cloth </th> <th scope="col">Wine </th></tr> <tr> <th scope="row"><b>England</b> </th> <td>100 </td> <td>120 </td></tr> <tr> <th scope="row"><b>Portugal</b> </th> <td>90 </td> <td>80 </td></tr></tbody></table> <p>In this illustration, England could commit 100 hours of labor to produce one unit of cloth, or produce <style data-mw-deduplicate="TemplateStyles:r1214402035">.mw-parser-output .sfrac{white-space:nowrap}.mw-parser-output .sfrac.tion,.mw-parser-output .sfrac .tion{display:inline-block;vertical-align:-0.5em;font-size:85%;text-align:center}.mw-parser-output .sfrac .num{display:block;line-height:1em;margin:0.0em 0.1em;border-bottom:1px solid}.mw-parser-output .sfrac .den{display:block;line-height:1em;margin:0.1em 0.1em}.mw-parser-output .sr-only{border:0;clip:rect(0,0,0,0);clip-path:polygon(0px 0px,0px 0px,0px 0px);height:1px;margin:-1px;overflow:hidden;padding:0;position:absolute;width:1px}</style><span class="sfrac">⁠<span class="tion"><span class="num">5</span><span class="sr-only">/</span><span class="den">6</span></span>⁠</span> units of wine. Meanwhile, in comparison, Portugal could commit 100 hours of labor to produce <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1214402035"><span class="sfrac">⁠<span class="tion"><span class="num">10</span><span class="sr-only">/</span><span class="den">9</span></span>⁠</span> units of cloth, or produce <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1214402035"><span class="sfrac">⁠<span class="tion"><span class="num">10</span><span class="sr-only">/</span><span class="den">8</span></span>⁠</span> units of wine. Portugal possesses an <i>absolute advantage</i> in producing both cloth and wine due to more produced per hour (since <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1214402035"><span class="sfrac">⁠<span class="tion"><span class="num">10</span><span class="sr-only">/</span><span class="den">9</span></span>⁠</span> > 1). If the capital and labour were mobile, both wine and cloth should be made in Portugal, with the capital and labour of England removed there.<sup id="cite_ref-12" class="reference"><a href="#cite_note-12"><span class="cite-bracket">[</span>12<span class="cite-bracket">]</span></a></sup> If they were not mobile, as Ricardo believed them to be generally, then England's <i>comparative advantage</i> (due to lower opportunity cost) in producing cloth means that it has an incentive to produce more of that good which is relatively cheaper for them to produce than the other—assuming they have an advantageous opportunity to trade in the marketplace for the other more difficult to produce good. </p><p>In the absence of trade, England requires 220 hours of work to both produce and consume one unit each of cloth and wine while Portugal requires 170 hours of work to produce and consume the same quantities. England is more efficient at producing cloth than wine, and Portugal is more efficient at producing wine than cloth. So, if each country specializes in the good for which it has a comparative advantage, then the global production of both goods increases, for England can spend 220 labor hours to produce 2.2 units of cloth while Portugal can spend 170 hours to produce 2.125 units of wine. Moreover, if both countries specialize in the above manner and England trades a unit of its cloth for <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1214402035"><span class="sfrac">⁠<span class="tion"><span class="num">5</span><span class="sr-only">/</span><span class="den">6</span></span>⁠</span> to <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1214402035"><span class="sfrac">⁠<span class="tion"><span class="num">9</span><span class="sr-only">/</span><span class="den">8</span></span>⁠</span> units of Portugal's wine, then both countries can consume at least a unit each of cloth and wine, with 0 to 0.2 units of cloth and 0 to 0.125 units of wine remaining in each respective country to be consumed or exported. Consequently, both England and Portugal can consume more wine and cloth under free trade than in <a href="/wiki/Autarky" title="Autarky">autarky</a>. </p> <div class="mw-heading mw-heading3"><h3 id="Ricardian_model">Ricardian model</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Comparative_advantage&action=edit&section=3" title="Edit section: Ricardian model"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>The <b>Ricardian model</b> is a <a href="/wiki/General_equilibrium" class="mw-redirect" title="General equilibrium">general equilibrium</a> mathematical model of <a href="/wiki/International_trade" title="International trade">international trade</a>. Although the idea of the Ricardian model was first presented in the <i>Essay on Profits</i> (a single-commodity version) and then in the <i>Principles</i> (a multi-commodity version) by <a href="/wiki/David_Ricardo" title="David Ricardo">David Ricardo</a>, the first mathematical Ricardian model was published by <a href="/wiki/William_Whewell" title="William Whewell">William Whewell</a> in 1833.<sup id="cite_ref-John_Wood_13-0" class="reference"><a href="#cite_note-John_Wood-13"><span class="cite-bracket">[</span>13<span class="cite-bracket">]</span></a></sup> The earliest test of the Ricardian model was performed by G.D.A. MacDougall, which was published in <i>Economic Journal</i> of 1951 and 1952.<sup id="cite_ref-Barbara_Ingham_14-0" class="reference"><a href="#cite_note-Barbara_Ingham-14"><span class="cite-bracket">[</span>14<span class="cite-bracket">]</span></a></sup> In the Ricardian model, trade patterns depend on productivity differences. </p><p>The following is a typical modern interpretation of the classical Ricardian model.<sup id="cite_ref-15" class="reference"><a href="#cite_note-15"><span class="cite-bracket">[</span>15<span class="cite-bracket">]</span></a></sup> In the interest of simplicity, it uses notation and definitions, such as opportunity cost, unavailable to Ricardo. </p><p>The world economy consists of two countries, Home and Foreign, which produce wine and cloth. Labor, the only factor of production, is <a href="/wiki/Labor_mobility" title="Labor mobility">mobile</a> domestically but not internationally; there may be migration between sectors but not between countries. We denote the labor force in Home by <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle \textstyle L}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <mstyle displaystyle="false" scriptlevel="0"> <mi>L</mi> </mstyle> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle \textstyle L}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/1cda6bb9fb712344826da560f9cee7f13da48cfb" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -0.338ex; width:1.583ex; height:2.176ex;" alt="{\displaystyle \textstyle L}"></span>, the amount of labor required to produce one unit of wine in Home by <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle \textstyle a_{LW}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <mstyle displaystyle="false" scriptlevel="0"> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> </msub> </mstyle> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle \textstyle a_{LW}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/8b8c0bbb1f935bfa00dbc0d1214a42cf510c487d" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -0.671ex; width:4.303ex; height:2.009ex;" alt="{\displaystyle \textstyle a_{LW}}"></span>, and the amount of labor required to produce one unit of cloth in Home by <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle \textstyle a_{LC}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <mstyle displaystyle="false" scriptlevel="0"> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> </msub> </mstyle> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle \textstyle a_{LC}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/4271ae1c64f3ea2c7f2938f0de00833127d8609f" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -0.671ex; width:3.83ex; height:2.009ex;" alt="{\displaystyle \textstyle a_{LC}}"></span>. The total amount of wine and cloth produced in Home are <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle Q_{W}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <msub> <mi>Q</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>W</mi> </mrow> </msub> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle Q_{W}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/a58624e70a472b4a30bdeedbbfdce84bd765b705" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -0.671ex; width:3.793ex; height:2.509ex;" alt="{\displaystyle Q_{W}}"></span> and <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle Q_{C}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <msub> <mi>Q</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>C</mi> </mrow> </msub> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle Q_{C}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/fa34fa85ab44838da15ab2a5b944c303c5a1e33a" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -0.671ex; width:3.32ex; height:2.509ex;" alt="{\displaystyle Q_{C}}"></span> respectively. We denote the same variables for Foreign by appending a <a href="/wiki/Prime_(symbol)" title="Prime (symbol)">prime</a>. For instance, <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle \textstyle a'_{LW}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <mstyle displaystyle="false" scriptlevel="0"> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> <mo>′</mo> </msubsup> </mstyle> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle \textstyle a'_{LW}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/0831e7b84b86cc256103b610b38017592213784a" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -1.005ex; width:4.303ex; height:2.843ex;" alt="{\displaystyle \textstyle a'_{LW}}"></span> is the amount of labor needed to produce a unit of wine in Foreign. </p><p>We do not know if Home can produce cloth using fewer hours of work than Foreign. That is, we do not know if <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle a_{LC}<a'_{LC}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> </msub> <mo><</mo> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> <mo>′</mo> </msubsup> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle a_{LC}<a'_{LC}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/4e58106595326da84efb9759821843b5704ad359" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -1.005ex; width:10.759ex; height:2.843ex;" alt="{\displaystyle a_{LC}<a'_{LC}}"></span>. Similarly, we do not know if Home can produce wine using fewer hours of work. However, we assume Home is <i>relatively</i> more productive than Foreign in making in cloth vs. wine: </p> <dl><dd><span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle a_{LC}/a'_{LC}<a_{LW}/a'_{LW}.}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> <mo>′</mo> </msubsup> <mo><</mo> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> <mo>′</mo> </msubsup> <mo>.</mo> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle a_{LC}/a'_{LC}<a_{LW}/a'_{LW}.}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/b7d1fd050b70bcdd42af4788aa3aad98c602397c" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -1.005ex; width:22.337ex; height:3.009ex;" alt="{\displaystyle a_{LC}/a'_{LC}<a_{LW}/a'_{LW}.}"></span></dd></dl> <p>Equivalently, we may assume that Home has a comparative advantage in cloth in the sense that it has a lower opportunity cost for cloth in terms of wine than Foreign: </p> <dl><dd><span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle a_{LC}/a_{LW}<a'_{LC}/a'_{LW}.}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> </msub> <mo><</mo> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> <mo>′</mo> </msubsup> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> <mo>′</mo> </msubsup> <mo>.</mo> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle a_{LC}/a_{LW}<a'_{LC}/a'_{LW}.}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/3005af12ff72c100857ffb9bd82186e4a6e565b2" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -1.005ex; width:22.337ex; height:3.009ex;" alt="{\displaystyle a_{LC}/a_{LW}<a'_{LC}/a'_{LW}.}"></span></dd></dl> <p>In the absence of trade, the relative price of cloth and wine in each country is determined solely by the relative labor cost of the goods. Hence the relative autarky price of cloth is <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle a_{LC}/a_{LW}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> </msub> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle a_{LC}/a_{LW}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/dbb0b6f1e09bfc3904e66528c60e66d772cb787e" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -0.838ex; width:9.296ex; height:2.843ex;" alt="{\displaystyle a_{LC}/a_{LW}}"></span> in Home and <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle a'_{LC}/a'_{LW}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> <mo>′</mo> </msubsup> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> <mo>′</mo> </msubsup> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle a'_{LC}/a'_{LW}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/668bae68ca0d1fba314f9291df6db833e064da72" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -1.005ex; width:9.296ex; height:3.009ex;" alt="{\displaystyle a'_{LC}/a'_{LW}}"></span> in Foreign. With free trade, the price of cloth or wine in either country is the world price <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle P_{C}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <msub> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>C</mi> </mrow> </msub> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle P_{C}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/b258feadbba067fab08cbac9d1f817bc1748fe73" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -0.671ex; width:2.974ex; height:2.509ex;" alt="{\displaystyle P_{C}}"></span> or<span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle P_{W}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <msub> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>W</mi> </mrow> </msub> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle P_{W}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/0c7671b5bff76a0a9896a2b1c2ccbf894f71b4ad" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -0.671ex; width:3.446ex; height:2.509ex;" alt="{\displaystyle P_{W}}"></span>. </p><p>Instead of considering the world demand (or supply) for cloth and wine, we are interested in the world <i>relative demand</i> (or <i>relative supply</i>) for cloth and wine, which we define as the ratio of the world demand (or supply) for cloth to the world demand (or supply) for wine. In general equilibrium, the world relative price <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle \textstyle P_{C}/P_{W}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <mstyle displaystyle="false" scriptlevel="0"> <msub> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>C</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>W</mi> </mrow> </msub> </mstyle> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle \textstyle P_{C}/P_{W}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/42ada6ab24d288e82425901501becf297baae532" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -0.838ex; width:7.582ex; height:2.843ex;" alt="{\displaystyle \textstyle P_{C}/P_{W}}"></span> will be determined uniquely by the intersection of world relative demand <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle \textstyle RD}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <mstyle displaystyle="false" scriptlevel="0"> <mi>R</mi> <mi>D</mi> </mstyle> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle \textstyle RD}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/15324f8ba296dc284ab3bf39426f22606e0052a5" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -0.338ex; width:3.688ex; height:2.176ex;" alt="{\displaystyle \textstyle RD}"></span> and world relative supply <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle \textstyle RS}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <mstyle displaystyle="false" scriptlevel="0"> <mi>R</mi> <mi>S</mi> </mstyle> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle \textstyle RS}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/73741f6bfaeaaf617f7d3b5aaf014908f28d52bc" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -0.338ex; width:3.263ex; height:2.176ex;" alt="{\displaystyle \textstyle RS}"></span> curves. </p> <figure class="mw-default-size" typeof="mw:File/Thumb"><a href="/wiki/File:World_relative_supply_and_demand_in_the_classical_Ricardo_model_of_one-factor_international_trade_between_two_countries.svg" class="mw-file-description"><img src="//upload.wikimedia.org/wikipedia/commons/thumb/0/02/World_relative_supply_and_demand_in_the_classical_Ricardo_model_of_one-factor_international_trade_between_two_countries.svg/220px-World_relative_supply_and_demand_in_the_classical_Ricardo_model_of_one-factor_international_trade_between_two_countries.svg.png" decoding="async" width="220" height="169" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/commons/thumb/0/02/World_relative_supply_and_demand_in_the_classical_Ricardo_model_of_one-factor_international_trade_between_two_countries.svg/330px-World_relative_supply_and_demand_in_the_classical_Ricardo_model_of_one-factor_international_trade_between_two_countries.svg.png 1.5x, //upload.wikimedia.org/wikipedia/commons/thumb/0/02/World_relative_supply_and_demand_in_the_classical_Ricardo_model_of_one-factor_international_trade_between_two_countries.svg/440px-World_relative_supply_and_demand_in_the_classical_Ricardo_model_of_one-factor_international_trade_between_two_countries.svg.png 2x" data-file-width="338" data-file-height="260" /></a><figcaption>The demand for cloth relative to wine decreases with the relative price of cloth in terms of wine; the supply <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle RS}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <mi>R</mi> <mi>S</mi> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle RS}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/1ecbca11e04b2fc4087dc23553a52f6c3d7c6ee8" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -0.338ex; width:3.263ex; height:2.176ex;" alt="{\displaystyle RS}"></span> of cloth relative to wine increases with relative price. Two relative demand curves <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle RD_{1}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <mi>R</mi> <msub> <mi>D</mi> <mrow class="MJX-TeXAtom-ORD"> <mn>1</mn> </mrow> </msub> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle RD_{1}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/f98e762ba13dca58aa273b15efd96ff2dacc589f" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -0.671ex; width:4.743ex; height:2.509ex;" alt="{\displaystyle RD_{1}}"></span> and <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle RD_{2}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <mi>R</mi> <msub> <mi>D</mi> <mrow class="MJX-TeXAtom-ORD"> <mn>2</mn> </mrow> </msub> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle RD_{2}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/028ff8ce676a80a6defc7a8fde7d9034f760227a" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -0.671ex; width:4.743ex; height:2.509ex;" alt="{\displaystyle RD_{2}}"></span> are drawn for illustrative purposes.</figcaption></figure> <p>We assume that the relative demand curve reflects substitution effects and is decreasing with respect to relative price. The behavior of the relative supply curve, however, warrants closer study. Recalling our original assumption that Home has a comparative advantage in cloth, we consider five possibilities for the relative quantity of cloth supplied at a given price. </p> <ul><li>If <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle \textstyle P_{C}/P_{W}=a_{LC}/a_{LW}<a'_{LC}/a'_{LW}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <mstyle displaystyle="false" scriptlevel="0"> <msub> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>C</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>W</mi> </mrow> </msub> <mo>=</mo> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> </msub> <mo><</mo> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> <mo>′</mo> </msubsup> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> <mo>′</mo> </msubsup> </mstyle> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle \textstyle P_{C}/P_{W}=a_{LC}/a_{LW}<a'_{LC}/a'_{LW}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/694244d6b7d68b1f181bdfb29de5b6ff1486172b" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -1.005ex; width:32.371ex; height:3.009ex;" alt="{\displaystyle \textstyle P_{C}/P_{W}=a_{LC}/a_{LW}<a'_{LC}/a'_{LW}}"></span>, then Foreign specializes in wine, for the wage <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle P'_{W}/a'_{LW}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <msubsup> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>W</mi> </mrow> <mo>′</mo> </msubsup> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> <mo>′</mo> </msubsup> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle P'_{W}/a'_{LW}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/f02820475d448a6caadbf2a16c1710b17e1a9475" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -1.005ex; width:8.912ex; height:3.009ex;" alt="{\displaystyle P'_{W}/a'_{LW}}"></span> in the wine sector is greater than the wage <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle P'_{C}/a'_{LC}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <msubsup> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>C</mi> </mrow> <mo>′</mo> </msubsup> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> <mo>′</mo> </msubsup> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle P'_{C}/a'_{LC}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/224765aec76195bd4efbe3d14402b8b27c8a0068" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -1.005ex; width:7.966ex; height:3.009ex;" alt="{\displaystyle P'_{C}/a'_{LC}}"></span> in the cloth sector. However, Home workers are indifferent between working in either sector. As a result, the quantity of cloth supplied can take any value.</li> <li>If <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle \textstyle P_{C}/P_{W}<a_{LC}/a_{LW}<a'_{LC}/a'_{LW}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <mstyle displaystyle="false" scriptlevel="0"> <msub> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>C</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>W</mi> </mrow> </msub> <mo><</mo> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> </msub> <mo><</mo> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> <mo>′</mo> </msubsup> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> <mo>′</mo> </msubsup> </mstyle> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle \textstyle P_{C}/P_{W}<a_{LC}/a_{LW}<a'_{LC}/a'_{LW}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/1437ee5cade43bfe7a94a25370b193f7135f6275" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -1.005ex; width:32.371ex; height:3.009ex;" alt="{\displaystyle \textstyle P_{C}/P_{W}<a_{LC}/a_{LW}<a'_{LC}/a'_{LW}}"></span>, then both Home and Foreign specialize in wine, for similar reasons as above, and so the quantity of cloth supplied is zero.</li> <li>If <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle \textstyle a_{LC}/a_{LW}<P_{C}/P_{W}<a'_{LC}/a'_{LW}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <mstyle displaystyle="false" scriptlevel="0"> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> </msub> <mo><</mo> <msub> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>C</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>W</mi> </mrow> </msub> <mo><</mo> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> <mo>′</mo> </msubsup> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> <mo>′</mo> </msubsup> </mstyle> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle \textstyle a_{LC}/a_{LW}<P_{C}/P_{W}<a'_{LC}/a'_{LW}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/2398f316bae4d42c35e46acd705d7d79e1de7e96" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -1.005ex; width:32.371ex; height:3.009ex;" alt="{\displaystyle \textstyle a_{LC}/a_{LW}<P_{C}/P_{W}<a'_{LC}/a'_{LW}}"></span>, then Home specializes in cloth whereas Foreign specializes in wine. The quantity of cloth supplied is given by the ratio <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle \textstyle {\frac {L/a_{LC}}{L'/a'_{LW}}}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <mstyle displaystyle="false" scriptlevel="0"> <mrow class="MJX-TeXAtom-ORD"> <mfrac> <mrow> <mi>L</mi> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> </msub> </mrow> <mrow> <msup> <mi>L</mi> <mo>′</mo> </msup> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> <mo>′</mo> </msubsup> </mrow> </mfrac> </mrow> </mstyle> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle \textstyle {\frac {L/a_{LC}}{L'/a'_{LW}}}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/c474541fbb0b841112611cd150b1814f95aee084" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -2.171ex; width:6.649ex; height:5.176ex;" alt="{\displaystyle \textstyle {\frac {L/a_{LC}}{L'/a'_{LW}}}}"></span> of the world production of cloth to the world production of wine.</li> <li>If <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle \textstyle a_{LC}/a_{LW}<a'_{LC}/a'_{LW}<P_{C}/P_{W}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <mstyle displaystyle="false" scriptlevel="0"> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> </msub> <mo><</mo> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> <mo>′</mo> </msubsup> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> <mo>′</mo> </msubsup> <mo><</mo> <msub> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>C</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>W</mi> </mrow> </msub> </mstyle> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle \textstyle a_{LC}/a_{LW}<a'_{LC}/a'_{LW}<P_{C}/P_{W}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/ef9e9282d4e68f4187a4ba80e3cb16bd79e244d0" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -1.005ex; width:32.371ex; height:3.009ex;" alt="{\displaystyle \textstyle a_{LC}/a_{LW}<a'_{LC}/a'_{LW}<P_{C}/P_{W}}"></span>, then both Home and Foreign specialize in cloth. The quantity of cloth supplied tends to infinity as the quantity of wine supplied approaches zero.</li> <li>If <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle \textstyle a_{LC}/a_{LW}<a'_{LC}/a'_{LW}=P_{C}/P_{W}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <mstyle displaystyle="false" scriptlevel="0"> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> </msub> <mo><</mo> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> <mo>′</mo> </msubsup> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> <mo>′</mo> </msubsup> <mo>=</mo> <msub> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>C</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>W</mi> </mrow> </msub> </mstyle> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle \textstyle a_{LC}/a_{LW}<a'_{LC}/a'_{LW}=P_{C}/P_{W}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/9f76d5eb6b12ba2aba6d8814a94a4827befdd0a8" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -1.005ex; width:32.371ex; height:3.009ex;" alt="{\displaystyle \textstyle a_{LC}/a_{LW}<a'_{LC}/a'_{LW}=P_{C}/P_{W}}"></span>, then Home specializes in cloth while Foreign workers are indifferent between sectors. Again, the relative quantity of cloth supplied can take any value.</li></ul> <figure class="mw-default-size" typeof="mw:File/Thumb"><a href="/wiki/File:Consumption_possibilities_in_the_classical_Ricardo_model_of_one-factor_international_trade_between_two_countries.svg" class="mw-file-description"><img src="//upload.wikimedia.org/wikipedia/commons/thumb/7/79/Consumption_possibilities_in_the_classical_Ricardo_model_of_one-factor_international_trade_between_two_countries.svg/220px-Consumption_possibilities_in_the_classical_Ricardo_model_of_one-factor_international_trade_between_two_countries.svg.png" decoding="async" width="220" height="187" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/commons/thumb/7/79/Consumption_possibilities_in_the_classical_Ricardo_model_of_one-factor_international_trade_between_two_countries.svg/330px-Consumption_possibilities_in_the_classical_Ricardo_model_of_one-factor_international_trade_between_two_countries.svg.png 1.5x, //upload.wikimedia.org/wikipedia/commons/thumb/7/79/Consumption_possibilities_in_the_classical_Ricardo_model_of_one-factor_international_trade_between_two_countries.svg/440px-Consumption_possibilities_in_the_classical_Ricardo_model_of_one-factor_international_trade_between_two_countries.svg.png 2x" data-file-width="296" data-file-height="252" /></a><figcaption>The blue triangle depicts Home's original production (and consumption) possibilities. By trading, Home can also consume bundles in the pink triangle despite facing the same productions possibility frontier.</figcaption></figure> <p>As long as the relative demand is finite, the relative price is always bounded by the inequality </p> <dl><dd><span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle a_{LC}/a_{LW}\leq {P_{C}/P_{W}}\leq {a'_{LC}/a'_{LW}}.}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> </msub> <mo>≤</mo> <mrow class="MJX-TeXAtom-ORD"> <msub> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>C</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>W</mi> </mrow> </msub> </mrow> <mo>≤</mo> <mrow class="MJX-TeXAtom-ORD"> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> <mo>′</mo> </msubsup> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msubsup> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> <mo>′</mo> </msubsup> </mrow> <mo>.</mo> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle a_{LC}/a_{LW}\leq {P_{C}/P_{W}}\leq {a'_{LC}/a'_{LW}}.}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/c80a907578f3cfd23fc22aa561aab4d1bee50da0" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -1.005ex; width:33.018ex; height:3.009ex;" alt="{\displaystyle a_{LC}/a_{LW}\leq {P_{C}/P_{W}}\leq {a'_{LC}/a'_{LW}}.}"></span></dd></dl> <p>In autarky, Home faces a <a href="/wiki/Production_possibilities_frontier" class="mw-redirect" title="Production possibilities frontier">production constraint</a> of the form </p> <dl><dd><span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle a_{LC}Q_{C}+a_{LW}Q_{W}\leq L,}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> </msub> <msub> <mi>Q</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>C</mi> </mrow> </msub> <mo>+</mo> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> </msub> <msub> <mi>Q</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>W</mi> </mrow> </msub> <mo>≤</mo> <mi>L</mi> <mo>,</mo> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle a_{LC}Q_{C}+a_{LW}Q_{W}\leq L,}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/a588af8e29c0e646d73de1d264a4b3602a7d3520" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -0.671ex; width:23.414ex; height:2.509ex;" alt="{\displaystyle a_{LC}Q_{C}+a_{LW}Q_{W}\leq L,}"></span></dd></dl> <p>from which it follows that Home's cloth consumption at the production possibilities frontier is </p> <dl><dd><span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle Q_{C}=L/a_{LC}-(a_{LW}/a_{LC})Q_{W}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <msub> <mi>Q</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>C</mi> </mrow> </msub> <mo>=</mo> <mi>L</mi> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> </msub> <mo>−</mo> <mo stretchy="false">(</mo> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> </msub> <mo stretchy="false">)</mo> <msub> <mi>Q</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>W</mi> </mrow> </msub> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle Q_{C}=L/a_{LC}-(a_{LW}/a_{LC})Q_{W}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/8a8addaff146200e75974c18d4de9e1f71d2736c" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -0.838ex; width:30.732ex; height:2.843ex;" alt="{\displaystyle Q_{C}=L/a_{LC}-(a_{LW}/a_{LC})Q_{W}}"></span>.</dd></dl> <p>With free trade, Home produces cloth exclusively, an amount of which it exports in exchange for wine at the prevailing rate. Thus Home's overall consumption is now subject to the constraint </p> <dl><dd><span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle a_{LC}Q_{C}+a_{LC}(P_{W}/P_{C})Q_{W}\leq L}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> </msub> <msub> <mi>Q</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>C</mi> </mrow> </msub> <mo>+</mo> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> </msub> <mo stretchy="false">(</mo> <msub> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>W</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>C</mi> </mrow> </msub> <mo stretchy="false">)</mo> <msub> <mi>Q</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>W</mi> </mrow> </msub> <mo>≤</mo> <mi>L</mi> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle a_{LC}Q_{C}+a_{LC}(P_{W}/P_{C})Q_{W}\leq L}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/e6ed24a9dfbab6aa0f73f929ad6feb0a374b05f1" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -0.838ex; width:31.686ex; height:2.843ex;" alt="{\displaystyle a_{LC}Q_{C}+a_{LC}(P_{W}/P_{C})Q_{W}\leq L}"></span></dd></dl> <p>while its cloth consumption at the <i>consumption possibilities</i> frontier is given by </p> <dl><dd><span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle Q_{C}=L/a_{LC}-(P_{W}/P_{C})Q_{W}\geq L/a_{LC}-(a_{LW}/a_{LC})Q_{W}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <msub> <mi>Q</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>C</mi> </mrow> </msub> <mo>=</mo> <mi>L</mi> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> </msub> <mo>−</mo> <mo stretchy="false">(</mo> <msub> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>W</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>P</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>C</mi> </mrow> </msub> <mo stretchy="false">)</mo> <msub> <mi>Q</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>W</mi> </mrow> </msub> <mo>≥</mo> <mi>L</mi> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> </msub> <mo>−</mo> <mo stretchy="false">(</mo> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>W</mi> </mrow> </msub> <mrow class="MJX-TeXAtom-ORD"> <mo>/</mo> </mrow> <msub> <mi>a</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>L</mi> <mi>C</mi> </mrow> </msub> <mo stretchy="false">)</mo> <msub> <mi>Q</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>W</mi> </mrow> </msub> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle Q_{C}=L/a_{LC}-(P_{W}/P_{C})Q_{W}\geq L/a_{LC}-(a_{LW}/a_{LC})Q_{W}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/b6846c48cfbc3179be5fac126db6048ad569cc45" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -0.838ex; width:56.431ex; height:2.843ex;" alt="{\displaystyle Q_{C}=L/a_{LC}-(P_{W}/P_{C})Q_{W}\geq L/a_{LC}-(a_{LW}/a_{LC})Q_{W}}"></span>.</dd></dl> <p>A symmetric argument holds for Foreign. Therefore, by trading and specializing in a good for which it has a comparative advantage, each country can expand its consumption possibilities. Consumers can choose from bundles of wine and cloth that they could not have produced themselves in closed economies. </p><p>There is another way to prove the theory of comparative advantage, which requires less assumption than the above-detailed proof, and in particular does not require for the hourly wages to be equal in both industries, nor requires any equilibrium between offer and demand on the market.<sup id="cite_ref-G.L._16-0" class="reference"><a href="#cite_note-G.L.-16"><span class="cite-bracket">[</span>16<span class="cite-bracket">]</span></a></sup> Such a proof can be extended to situations with many goods and many countries, non constant returns and more than one factor of production. </p> <div class="mw-heading mw-heading3"><h3 id="Terms_of_trade">Terms of trade</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Comparative_advantage&action=edit&section=4" title="Edit section: Terms of trade"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Terms of trade is the rate at which one good could be traded for another. If both countries specialize in the good for which they have a comparative advantage then trade, the terms of trade for a good (that benefit both entities) will fall between each entities opportunity costs. In the example above one unit of cloth would trade for between <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle {\frac {5}{6}}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <mrow class="MJX-TeXAtom-ORD"> <mfrac> <mn>5</mn> <mn>6</mn> </mfrac> </mrow> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle {\frac {5}{6}}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/4c49fbcd8bd12062e0998418e4589521da0ba0a6" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -1.838ex; width:1.999ex; height:5.176ex;" alt="{\displaystyle {\frac {5}{6}}}"></span> units of wine and <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle {\frac {9}{8}}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <mrow class="MJX-TeXAtom-ORD"> <mfrac> <mn>9</mn> <mn>8</mn> </mfrac> </mrow> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle {\frac {9}{8}}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/8c7ee38d65cd9c5dba0a6b21a58b6b8ed3fdd7f1" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -1.838ex; width:1.999ex; height:5.176ex;" alt="{\displaystyle {\frac {9}{8}}}"></span> units of wine.<sup id="cite_ref-17" class="reference"><a href="#cite_note-17"><span class="cite-bracket">[</span>17<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading2"><h2 id="Haberler's_opportunity_costs_formulation"><span id="Haberler.27s_opportunity_costs_formulation"></span>Haberler's opportunity costs formulation</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Comparative_advantage&action=edit&section=5" title="Edit section: Haberler's opportunity costs formulation"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>In 1930 Austrian-American economist <a href="/wiki/Gottfried_Haberler" title="Gottfried Haberler">Gottfried Haberler</a> detached the doctrine of comparative advantage from Ricardo's labor theory of value and provided a modern opportunity cost formulation. Haberler's reformulation of comparative advantage revolutionized the theory of international trade and laid the conceptual groundwork of modern trade theories. </p><p>Haberler's innovation was to reformulate the theory of comparative advantage such that the value of good X is measured in terms of the forgone units of production of good Y rather than the labor units necessary to produce good X, as in the Ricardian formulation. Haberler implemented this opportunity-cost formulation of comparative advantage by introducing the concept of a production possibility curve into international trade theory.<sup id="cite_ref-18" class="reference"><a href="#cite_note-18"><span class="cite-bracket">[</span>18<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading2"><h2 id="Modern_theories">Modern theories</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Comparative_advantage&action=edit&section=6" title="Edit section: Modern theories"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1251242444"><table class="box-More_citations_needed plainlinks metadata ambox ambox-content ambox-Refimprove" role="presentation"><tbody><tr><td class="mbox-image"><div class="mbox-image-div"><span typeof="mw:File"><a href="/wiki/File:Question_book-new.svg" class="mw-file-description"><img alt="" src="//upload.wikimedia.org/wikipedia/en/thumb/9/99/Question_book-new.svg/50px-Question_book-new.svg.png" decoding="async" width="50" height="39" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/en/thumb/9/99/Question_book-new.svg/75px-Question_book-new.svg.png 1.5x, //upload.wikimedia.org/wikipedia/en/thumb/9/99/Question_book-new.svg/100px-Question_book-new.svg.png 2x" data-file-width="512" data-file-height="399" /></a></span></div></td><td class="mbox-text"><div class="mbox-text-span">This section <b>needs additional citations for <a href="/wiki/Wikipedia:Verifiability" title="Wikipedia:Verifiability">verification</a></b>.<span class="hide-when-compact"> Please help <a href="/wiki/Special:EditPage/Comparative_advantage" title="Special:EditPage/Comparative advantage">improve this article</a> by <a href="/wiki/Help:Referencing_for_beginners" title="Help:Referencing for beginners">adding citations to reliable sources</a> in this section. Unsourced material may be challenged and removed.<br /><small><span class="plainlinks"><i>Find sources:</i> <a rel="nofollow" class="external text" href="https://www.google.com/search?as_eq=wikipedia&q=%22Comparative+advantage%22">"Comparative advantage"</a> – <a rel="nofollow" class="external text" href="https://www.google.com/search?tbm=nws&q=%22Comparative+advantage%22+-wikipedia&tbs=ar:1">news</a> <b>·</b> <a rel="nofollow" class="external text" href="https://www.google.com/search?&q=%22Comparative+advantage%22&tbs=bkt:s&tbm=bks">newspapers</a> <b>·</b> <a rel="nofollow" class="external text" href="https://www.google.com/search?tbs=bks:1&q=%22Comparative+advantage%22+-wikipedia">books</a> <b>·</b> <a rel="nofollow" class="external text" href="https://scholar.google.com/scholar?q=%22Comparative+advantage%22">scholar</a> <b>·</b> <a rel="nofollow" class="external text" href="https://www.jstor.org/action/doBasicSearch?Query=%22Comparative+advantage%22&acc=on&wc=on">JSTOR</a></span></small></span> <span class="date-container"><i>(<span class="date">July 2021</span>)</i></span><span class="hide-when-compact"><i> (<small><a href="/wiki/Help:Maintenance_template_removal" title="Help:Maintenance template removal">Learn how and when to remove this message</a></small>)</i></span></div></td></tr></tbody></table> <p>Since 1817, economists have attempted to generalize the <a href="/wiki/Ricardian_model" class="mw-redirect" title="Ricardian model">Ricardian model</a> and derive the principle of comparative advantage in broader settings, most notably in the <a href="/wiki/Neoclassical_economics" title="Neoclassical economics">neoclassical</a> <i>specific factors</i> <a href="/wiki/Richardo-Viner_model" class="mw-redirect" title="Richardo-Viner model">Ricardo-Viner</a> (which allows for the model to include more factors than just labour)<sup id="cite_ref-19" class="reference"><a href="#cite_note-19"><span class="cite-bracket">[</span>19<span class="cite-bracket">]</span></a></sup> and <i>factor proportions</i> <a href="/wiki/Heckscher%E2%80%93Ohlin_model" title="Heckscher–Ohlin model">Heckscher–Ohlin models</a>. Subsequent developments in the <a href="/wiki/New_trade_theory" title="New trade theory">new trade theory</a>, motivated in part by the empirical shortcomings of the H–O model and its inability to explain <a href="/wiki/Intra-industry_trade" title="Intra-industry trade">intra-industry trade</a>, have provided an explanation for aspects of trade that are not accounted for by comparative advantage.<sup id="cite_ref-20" class="reference"><a href="#cite_note-20"><span class="cite-bracket">[</span>20<span class="cite-bracket">]</span></a></sup> Nonetheless, economists like <a href="/wiki/Alan_Deardorff" title="Alan Deardorff">Alan Deardorff</a>,<sup id="cite_ref-21" class="reference"><a href="#cite_note-21"><span class="cite-bracket">[</span>21<span class="cite-bracket">]</span></a></sup> <a href="/wiki/Avinash_Dixit" title="Avinash Dixit">Avinash Dixit</a>, <a href="/wiki/Gottfried_Haberler" title="Gottfried Haberler">Gottfried Haberler</a>, and <a href="/wiki/Victor_D._Norman" title="Victor D. Norman">Victor D. Norman</a><sup id="cite_ref-22" class="reference"><a href="#cite_note-22"><span class="cite-bracket">[</span>22<span class="cite-bracket">]</span></a></sup> have responded with weaker generalizations of the principle of comparative advantage, in which countries will only <i>tend</i> to export goods for which they have a comparative advantage. </p> <div class="mw-heading mw-heading3"><h3 id="Dornbusch_et_al.'s_continuum_of_goods_formulation"><span id="Dornbusch_et_al..27s_continuum_of_goods_formulation"></span>Dornbusch et al.'s continuum of goods formulation</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Comparative_advantage&action=edit&section=7" title="Edit section: Dornbusch et al.'s continuum of goods formulation"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>In both the Ricardian and H–O models, the comparative advantage theory is formulated for a 2 countries/2 commodities case. It can be extended to a 2 countries/many commodities case, or a many countries/2 commodities case. Adding commodities in order to have a smooth continuum of goods is the major insight of the seminal paper by Dornbusch, Fisher, and Samuelson. In fact, inserting an increasing number of goods into the chain of comparative advantage makes the gaps between the ratios of the labor requirements negligible, in which case the three types of equilibria around any good in the original model collapse to the same outcome. It notably allows for transportation costs to be incorporated, although the framework remains restricted to two countries.<sup id="cite_ref-23" class="reference"><a href="#cite_note-23"><span class="cite-bracket">[</span>23<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-24" class="reference"><a href="#cite_note-24"><span class="cite-bracket">[</span>24<span class="cite-bracket">]</span></a></sup> But in the case with many countries (more than 3 countries) and many commodities (more than 3 commodities), the notion of comparative advantage requires a substantially more complex formulation.<sup id="cite_ref-25" class="reference"><a href="#cite_note-25"><span class="cite-bracket">[</span>25<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading3"><h3 id="Deardorff's_general_law_of_comparative_advantage"><span id="Deardorff.27s_general_law_of_comparative_advantage"></span>Deardorff's general law of comparative advantage</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Comparative_advantage&action=edit&section=8" title="Edit section: Deardorff's general law of comparative advantage"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Skeptics of comparative advantage have underlined that its theoretical implications hardly hold when applied to individual commodities or pairs of commodities in a world of multiple commodities. Deardorff argues that the insights of comparative advantage remain valid if the theory is restated in terms of averages across all commodities. His models provide multiple insights on the correlations between vectors of trade and vectors with relative-autarky-price measures of comparative advantage. "Deardorff's general law of comparative advantage" is a model incorporating multiple goods which takes into account tariffs, transportation costs, and other obstacles to trade. </p> <div class="mw-heading mw-heading3"><h3 id="Alternative_approaches">Alternative approaches</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Comparative_advantage&action=edit&section=9" title="Edit section: Alternative approaches"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Recently, Y. Shiozawa succeeded in constructing a theory of international value in the tradition of Ricardo's <a href="/wiki/Cost-of-production_theory_of_value" title="Cost-of-production theory of value">cost-of-production theory of value</a>.<sup id="cite_ref-26" class="reference"><a href="#cite_note-26"><span class="cite-bracket">[</span>26<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-27" class="reference"><a href="#cite_note-27"><span class="cite-bracket">[</span>27<span class="cite-bracket">]</span></a></sup> This was based on a wide range of assumptions: Many countries; Many commodities; Several production techniques for a product in a country; Input trade (<a href="/wiki/International_trade#Traded_intermediate_goods" title="International trade">intermediate goods</a> are freely traded); Durable capital goods with constant efficiency during a predetermined lifetime; No transportation cost (extendable to positive cost cases). </p><p>In a famous comment, McKenzie pointed that "A moment's consideration will convince one that Lancashire would be unlikely to produce cotton cloth if the cotton had to be grown in England."<sup id="cite_ref-28" class="reference"><a href="#cite_note-28"><span class="cite-bracket">[</span>28<span class="cite-bracket">]</span></a></sup> However, McKenzie and later researchers could not produce a general theory which includes traded input goods because of the mathematical difficulty.<sup id="cite_ref-economics_29-0" class="reference"><a href="#cite_note-economics-29"><span class="cite-bracket">[</span>29<span class="cite-bracket">]</span></a></sup> As John Chipman points it, McKenzie found that "introduction of trade in intermediate product necessitates a fundamental alteration in classical analysis."<sup id="cite_ref-30" class="reference"><a href="#cite_note-30"><span class="cite-bracket">[</span>30<span class="cite-bracket">]</span></a></sup> Durable capital goods such as machines and installations are inputs to the productions in the same title as part and ingredients. </p><p>In view of the new theory, no physical criterion exists. Deardorff examines 10 versions of definitions in two groups but could not give a general formula for the case with intermediate goods.<sup id="cite_ref-economics_29-1" class="reference"><a href="#cite_note-economics-29"><span class="cite-bracket">[</span>29<span class="cite-bracket">]</span></a></sup> The competitive patterns are determined by the traders trials to find cheapest products in a world. The search of cheapest product is achieved by world optimal procurement. Thus the new theory explains how the global supply chains are formed.<sup id="cite_ref-31" class="reference"><a href="#cite_note-31"><span class="cite-bracket">[</span>31<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-32" class="reference"><a href="#cite_note-32"><span class="cite-bracket">[</span>32<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading2"><h2 id="Empirical_approach_to_comparative_advantage">Empirical approach to comparative advantage</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Comparative_advantage&action=edit&section=10" title="Edit section: Empirical approach to comparative advantage"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Comparative advantage is a theory about the benefits that specialization and trade would bring, rather than a strict prediction about actual behavior. (In practice, governments restrict international trade for a variety of reasons; under <a href="/wiki/Ulysses_S._Grant" title="Ulysses S. Grant">Ulysses S. Grant</a>, the US postponed opening up to free trade until its industries were up to strength, following the example set earlier by Britain.<sup id="cite_ref-33" class="reference"><a href="#cite_note-33"><span class="cite-bracket">[</span>33<span class="cite-bracket">]</span></a></sup>) Nonetheless there is a large amount of <a href="/wiki/Empirical_evidence" title="Empirical evidence">empirical</a> work testing the predictions of comparative advantage. The empirical works usually involve testing predictions of a particular model. For example, the Ricardian model predicts that technological differences in countries result in differences in labor productivity. The differences in labor productivity in turn determine the comparative advantages across different countries. Testing the Ricardian model for instance involves looking at the relationship between relative labor productivity and international trade patterns. A country that is relatively efficient in producing shoes tends to export shoes. </p> <div class="mw-heading mw-heading3"><h3 id="Direct_test:_natural_experiment_of_Japan">Direct test: natural experiment of Japan</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Comparative_advantage&action=edit&section=11" title="Edit section: Direct test: natural experiment of Japan"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Assessing the validity of comparative advantage on a global scale with the examples of contemporary economies is analytically challenging because of the multiple factors driving globalization: indeed, investment, migration, and technological change play a role in addition to trade. Even if we could isolate the workings of open trade from other processes, establishing its causal impact also remains complicated: it would require a comparison with a counterfactual world without open trade. Considering the durability of different aspects of globalization, it is hard to assess the sole impact of open trade on a particular economy.<sup class="noprint Inline-Template Template-Fact" style="white-space:nowrap;">[<i><a href="/wiki/Wikipedia:Citation_needed" title="Wikipedia:Citation needed"><span title="This claim needs references to reliable sources. (August 2021)">citation needed</span></a></i>]</sup> </p><p><a href="/wiki/Daniel_Bernhofen" title="Daniel Bernhofen">Daniel Bernhofen</a> and John Brown have attempted to address this issue, by using a natural experiment of a sudden transition to open trade in a market economy. They focus on the case of Japan.<sup id="cite_ref-34" class="reference"><a href="#cite_note-34"><span class="cite-bracket">[</span>34<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-35" class="reference"><a href="#cite_note-35"><span class="cite-bracket">[</span>35<span class="cite-bracket">]</span></a></sup> The Japanese economy indeed developed over several centuries under autarky and a quasi-isolation from international trade but was, by the mid-19th century, a sophisticated market economy with a population of 30 million. Under Western military pressure, Japan opened its economy to foreign trade through a series of <a href="/wiki/Unequal_treaties" title="Unequal treaties">unequal treaties</a>.<sup class="noprint Inline-Template Template-Fact" style="white-space:nowrap;">[<i><a href="/wiki/Wikipedia:Citation_needed" title="Wikipedia:Citation needed"><span title="This claim needs references to reliable sources. (August 2021)">citation needed</span></a></i>]</sup> </p><p>In 1859, the treaties limited tariffs to 5% and opened trade to Westerners. Considering that the transition from autarky, or self-sufficiency, to open trade was brutal, few changes to the fundamentals of the economy occurred in the first 20 years of trade. The general law of comparative advantage theorizes that an economy should, on average, export goods with low self-sufficiency prices and import goods with high self-sufficiency prices. Bernhofen and Brown found that by 1869, the price of Japan's main export, silk and derivatives, saw a 100% increase in real terms, while the prices of numerous imported goods declined of 30-75%. In the next decade, the ratio of imports to gross domestic product reached 4%.<sup id="cite_ref-36" class="reference"><a href="#cite_note-36"><span class="cite-bracket">[</span>36<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading3"><h3 id="Structural_estimation">Structural estimation</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Comparative_advantage&action=edit&section=12" title="Edit section: Structural estimation"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Another important way of demonstrating the validity of comparative advantage has consisted in 'structural estimation' approaches. These approaches have built on the Ricardian formulation of two goods for two countries and subsequent models with many goods or many countries. The aim has been to reach a formulation accounting for both multiple goods and multiple countries, in order to reflect real-world conditions more accurately. Jonathan Eaton and Samuel Kortum underlined that a convincing model needed to incorporate the idea of a 'continuum of goods' developed by Dornbusch et al. for both goods and countries. They were able to do so by allowing for an arbitrary (integer) number i of countries, and dealing exclusively with unit labor requirements for each good (one for each point on the unit interval) in each country (of which there are i).<sup id="cite_ref-37" class="reference"><a href="#cite_note-37"><span class="cite-bracket">[</span>37<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading3"><h3 id="Earlier_empirical_work">Earlier empirical work</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Comparative_advantage&action=edit&section=13" title="Edit section: Earlier empirical work"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Two of the first tests of comparative advantage were by MacDougall (1951, 1952).<sup id="cite_ref-38" class="reference"><a href="#cite_note-38"><span class="cite-bracket">[</span>38<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-39" class="reference"><a href="#cite_note-39"><span class="cite-bracket">[</span>39<span class="cite-bracket">]</span></a></sup> A prediction of a two-country Ricardian comparative advantage model is that countries will export goods where output per worker (i.e. productivity) is higher. That is, we expect a positive relationship between output per worker and the number of exports. MacDougall tested this relationship with data from the US and UK, and did indeed find a positive relationship. The statistical test of this positive relationship was replicated<sup id="cite_ref-40" class="reference"><a href="#cite_note-40"><span class="cite-bracket">[</span>40<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-41" class="reference"><a href="#cite_note-41"><span class="cite-bracket">[</span>41<span class="cite-bracket">]</span></a></sup> with new data by Stern (1962) and Balassa (1963). </p><p>Dosi et al. (1988)<sup id="cite_ref-42" class="reference"><a href="#cite_note-42"><span class="cite-bracket">[</span>42<span class="cite-bracket">]</span></a></sup> conducted a book-length empirical examination that suggests that international trade in manufactured goods is largely driven by differences in national technological competencies. </p><p>One critique of the textbook model of comparative advantage is that there are only two goods. The results of the model are robust to this assumption. Dornbusch et al. (1977)<sup id="cite_ref-43" class="reference"><a href="#cite_note-43"><span class="cite-bracket">[</span>43<span class="cite-bracket">]</span></a></sup> generalized the theory to allow for such a large number of goods as to form a smooth continuum. Based in part on these generalizations of the model, Davis (1995)<sup id="cite_ref-44" class="reference"><a href="#cite_note-44"><span class="cite-bracket">[</span>44<span class="cite-bracket">]</span></a></sup> provides a more recent view of the Ricardian approach to explain trade between countries with similar resources. </p><p>More recently, Golub and Hsieh (2000)<sup id="cite_ref-45" class="reference"><a href="#cite_note-45"><span class="cite-bracket">[</span>45<span class="cite-bracket">]</span></a></sup> presents modern statistical analysis of the relationship between relative productivity and trade patterns, which finds reasonably strong correlations, and Nunn (2007)<sup id="cite_ref-46" class="reference"><a href="#cite_note-46"><span class="cite-bracket">[</span>46<span class="cite-bracket">]</span></a></sup> finds that countries that have greater enforcement of contracts specialize in goods that require relationship-specific investments. </p><p>Taking a broader perspective, there has been work about the benefits of international trade. Zimring & Etkes (2014)<sup id="cite_ref-47" class="reference"><a href="#cite_note-47"><span class="cite-bracket">[</span>47<span class="cite-bracket">]</span></a></sup> finds that the <a href="/wiki/Blockade_of_the_Gaza_Strip" title="Blockade of the Gaza Strip">Blockade of the Gaza Strip</a>, which substantially restricted the availability of imports to Gaza, saw labor productivity fall by 20% in three years. Markusen et al. (1994)<sup id="cite_ref-48" class="reference"><a href="#cite_note-48"><span class="cite-bracket">[</span>48<span class="cite-bracket">]</span></a></sup> reports the effects of moving away from <a href="/wiki/Autarky" title="Autarky">autarky</a> to <a href="/wiki/Free_trade" title="Free trade">free trade</a> during the <a href="/wiki/Meiji_Restoration" title="Meiji Restoration">Meiji Restoration</a>, with the result that national income increased by up to 65% in 15 years. </p> <div style="clear:both;" class=""></div> <div class="mw-heading mw-heading3"><h3 id="Criticism">Criticism</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Comparative_advantage&action=edit&section=14" title="Edit section: Criticism"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Several arguments have been advanced against using comparative advantage as a justification for advocating free trade, and they have gained an audience among economists. <a href="/wiki/James_Brander" title="James Brander">James Brander</a> and <a href="/wiki/Barbara_Spencer" class="mw-redirect" title="Barbara Spencer">Barbara Spencer</a> demonstrated how, in a strategic setting where a few firms compete for the world market, export subsidies and import restrictions can keep foreign firms from competing with national firms, increasing welfare in the country implementing these so-called strategic trade policies.<sup id="cite_ref-49" class="reference"><a href="#cite_note-49"><span class="cite-bracket">[</span>49<span class="cite-bracket">]</span></a></sup> </p><p>There are some economists who dispute the claims of the benefit of comparative advantage. <a href="/wiki/James_K._Galbraith" title="James K. Galbraith">James K. Galbraith</a> has stated that "free trade has attained the status of a god" and that "<span class="nowrap"> </span>... none of the world's most successful trading regions, including Japan, Korea, Taiwan, and now mainland China, reached their current status by adopting <a href="/wiki/Neoliberal" class="mw-redirect" title="Neoliberal">neoliberal</a> trading rules." He argues that comparative advantage relies on the assumption of <a href="/wiki/Constant_returns" class="mw-redirect" title="Constant returns">constant returns</a>, which he states is not generally the case.<sup id="cite_ref-50" class="reference"><a href="#cite_note-50"><span class="cite-bracket">[</span>50<span class="cite-bracket">]</span></a></sup> According to Galbraith, nations trapped into specializing in agriculture are condemned to perpetual poverty, as agriculture is dependent on land, a finite non-increasing natural resource.<sup id="cite_ref-51" class="reference"><a href="#cite_note-51"><span class="cite-bracket">[</span>51<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading2"><h2 id="See_also">See also</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Comparative_advantage&action=edit&section=15" title="Edit section: See also"><span>edit</span></a><span 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.cs1-maint{color:#18911f}}</style><cite class="citation web cs1"><a rel="nofollow" class="external text" href="http://www.bls.gov/bls/glossary.htm">"BLS Information"</a>. <i>Glossary</i>. U.S. Bureau of Labor Statistics Division of Information Services. February 28, 2008<span class="reference-accessdate">. Retrieved <span class="nowrap">2009-05-05</span></span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=unknown&rft.jtitle=Glossary&rft.atitle=BLS+Information&rft.date=2008-02-28&rft_id=http%3A%2F%2Fwww.bls.gov%2Fbls%2Fglossary.htm&rfr_id=info%3Asid%2Fen.wikipedia.org%3AComparative+advantage" class="Z3988"></span></span> </li> <li id="cite_note-2"><span class="mw-cite-backlink"><b><a href="#cite_ref-2">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFManeschi1998" class="citation book cs1">Maneschi, Andrea (1998). <i>Comparative Advantage in International Trade: A Historical Perspective</i>. Elgar. p. 1.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.btitle=Comparative+Advantage+in+International+Trade%3A+A+Historical+Perspective&rft.pages=1&rft.pub=Elgar&rft.date=1998&rft.aulast=Maneschi&rft.aufirst=Andrea&rfr_id=info%3Asid%2Fen.wikipedia.org%3AComparative+advantage" class="Z3988"></span></span> </li> <li id="cite_note-3"><span class="mw-cite-backlink"><b><a href="#cite_ref-3">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFSchumacher2012" class="citation book cs1">Schumacher, Reinhard (2012). <i>Free Trade and Absolute and Comparative Advantage: A Critical Comparison of Two Major Theories of International Trade</i>. Universitätsverlag Potsdam. pp. 51–52. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/9783869561950" title="Special:BookSources/9783869561950"><bdi>9783869561950</bdi></a>. <q>Neoclassical and modern theories maintain the difference between domestic and international trade. 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(2014) "When Trade Stops: Lessons from the 2007–2010 Gaza Blockade". <i>Journal of International Economics</i>, forthcoming.</span> </li> <li id="cite_note-48"><span class="mw-cite-backlink"><b><a href="#cite_ref-48">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFMarkusen,_J.R.Melvin_J.R.,_KaempferW.M.,_K._Maskus1994" class="citation book cs1">Markusen, J.R.; Melvin J.R., Kaempfer & W.M., K. Maskus (1994). <a rel="nofollow" class="external text" href="https://web.archive.org/web/20150131180218/http://www.colorado.edu/Economics/courses/Markusen/textbook/mmkm3.pdf"><i>International Trade: Theory and Evidence</i></a> <span class="cs1-format">(PDF)</span>. McGraw-Hill. p. 218. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/978-0070404472" title="Special:BookSources/978-0070404472"><bdi>978-0070404472</bdi></a>. Archived from <a rel="nofollow" class="external text" href="http://www.colorado.edu/Economics/courses/Markusen/textbook/mmkm3.pdf">the original</a> <span class="cs1-format">(PDF)</span> on 2015-01-31<span class="reference-accessdate">. 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Galbraith, The Predator State, Free Press, 2008, pp. 68–69</span> </li> <li id="cite_note-51"><span class="mw-cite-backlink"><b><a href="#cite_ref-51">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFK.2008" class="citation book cs1"><a href="/wiki/James_K._Galbraith" title="James K. Galbraith">K., Galbraith, James</a> (2008). <i>The Predator State: How conservatives abandoned the free market and why liberals should too</i> (First Free Press hardcover ed.). New York. pp. <a rel="nofollow" class="external text" href="https://archive.org/details/predatorstatehow00galb/page/70">70</a>. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/9781416566830" title="Special:BookSources/9781416566830"><bdi>9781416566830</bdi></a>. <a href="/wiki/OCLC_(identifier)" class="mw-redirect" title="OCLC (identifier)">OCLC</a> <a rel="nofollow" class="external text" href="https://search.worldcat.org/oclc/192109752">192109752</a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.btitle=The+Predator+State%3A+How+conservatives+abandoned+the+free+market+and+why+liberals+should+too&rft.place=New+York&rft.pages=70&rft.edition=First+Free+Press+hardcover&rft.date=2008&rft_id=info%3Aoclcnum%2F192109752&rft.isbn=9781416566830&rft.aulast=K.&rft.aufirst=Galbraith%2C+James&rfr_id=info%3Asid%2Fen.wikipedia.org%3AComparative+advantage" class="Z3988"></span><span class="cs1-maint citation-comment"><code class="cs1-code">{{<a href="/wiki/Template:Cite_book" title="Template:Cite book">cite book</a>}}</code>: CS1 maint: location missing publisher (<a href="/wiki/Category:CS1_maint:_location_missing_publisher" title="Category:CS1 maint: location missing publisher">link</a>) CS1 maint: multiple names: authors list (<a href="/wiki/Category:CS1_maint:_multiple_names:_authors_list" title="Category:CS1 maint: multiple names: authors list">link</a>)</span></span> </li> </ol></div></div> <div class="mw-heading mw-heading2"><h2 id="Bibliography">Bibliography</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Comparative_advantage&action=edit&section=17" title="Edit section: Bibliography"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <style data-mw-deduplicate="TemplateStyles:r1239549316">.mw-parser-output .refbegin{margin-bottom:0.5em}.mw-parser-output .refbegin-hanging-indents>ul{margin-left:0}.mw-parser-output .refbegin-hanging-indents>ul>li{margin-left:0;padding-left:3.2em;text-indent:-3.2em}.mw-parser-output .refbegin-hanging-indents ul,.mw-parser-output .refbegin-hanging-indents ul li{list-style:none}@media(max-width:720px){.mw-parser-output .refbegin-hanging-indents>ul>li{padding-left:1.6em;text-indent:-1.6em}}.mw-parser-output .refbegin-columns{margin-top:0.3em}.mw-parser-output .refbegin-columns ul{margin-top:0}.mw-parser-output .refbegin-columns li{page-break-inside:avoid;break-inside:avoid-column}@media screen{.mw-parser-output .refbegin{font-size:90%}}</style><div class="refbegin refbegin-columns references-column-width" style="column-width: 30em"> <ul><li><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFBernhofen2005" class="citation journal cs1">Bernhofen, Daniel M (2005). 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Principles & Tools</i>.</li></ul> </div> <div class="mw-heading mw-heading2"><h2 id="External_links">External links</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Comparative_advantage&action=edit&section=18" title="Edit section: External links"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <ul><li><a rel="nofollow" class="external text" href="http://voxeu.org/content/cloth-wine-relevance-ricardo-s-comparative-advantage-21st-century">"Cloth for Wine? The Relevance of Ricardo's Comparative Advantage in the 21st Century" VoxEU Ebook.</a> <a rel="nofollow" class="external text" href="https://web.archive.org/web/20220702132700/https://voxeu.org/content/cloth-wine-relevance-ricardo-s-comparative-advantage-21st-century">Archived</a> 2022-07-02 at the <a href="/wiki/Wayback_Machine" title="Wayback Machine">Wayback Machine</a></li> <li>David Ricardo's <a rel="nofollow" class="external text" href="https://web.archive.org/web/20020806175422/http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/ricardo/prin/index.html">The Principles of Trade and Taxation</a> (original source text)</li> <li><a rel="nofollow" class="external text" href="http://web.mit.edu/krugman/www/ricardo.htm">Ricardo's Difficult Idea</a>, <a href="/wiki/Paul_Krugman" title="Paul Krugman">Paul Krugman</a>'s 1996 exploration of why non-economists don't understand the idea of comparative advantage</li> <li><a rel="nofollow" class="external text" href="http://internationalecon.com/v1.0/ch40/ch40.html">The Ricardian Model of Comparative Advantage</a></li> <li><a rel="nofollow" class="external text" href="http://www.investopedia.com/ask/answers/09/law-comparative-advantage.asp">What is comparative advantage? | Investopedia</a></li> <li><a rel="nofollow" class="external text" href="http://www.investopedia.com/terms/c/comparativeadvantage.asp">Comparative Advantage Definition | Investopedia</a></li> <li><a rel="nofollow" class="external text" href="http://icalc.co.il/calculators/index.php/economics-calculators/134-comparative-advantage-calculator.html">Comparative Advantage Calculator</a></li> <li><a rel="nofollow" class="external text" href="https://www.thestreet.com/politics/comparative-advantage-14651012">What Is Comparative Advantage? | The Street</a></li></ul> <div class="navbox-styles"><style data-mw-deduplicate="TemplateStyles:r1129693374">.mw-parser-output .hlist dl,.mw-parser-output .hlist ol,.mw-parser-output .hlist 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.navbar{display:none!important}}</style><div class="navbar plainlinks hlist navbar-mini"><ul><li class="nv-view"><a href="/wiki/Template:International_trade" title="Template:International trade"><abbr title="View this template">v</abbr></a></li><li class="nv-talk"><a href="/wiki/Template_talk:International_trade" title="Template talk:International trade"><abbr title="Discuss this template">t</abbr></a></li><li class="nv-edit"><a href="/wiki/Special:EditPage/Template:International_trade" title="Special:EditPage/Template:International trade"><abbr title="Edit this template">e</abbr></a></li></ul></div><div id="International_trade" style="font-size:114%;margin:0 4em"><a href="/wiki/International_trade" title="International trade">International trade</a></div></th></tr><tr><th scope="row" class="navbox-group" style="width:1%">Terminology</th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Absolute_advantage" title="Absolute advantage">Absolute advantage</a></li> <li><a href="/wiki/Balance_of_payments" title="Balance of payments">Balance of payments</a></li> <li><a href="/wiki/Balance_of_trade" title="Balance of trade">Balance of trade</a></li> <li><a href="/wiki/Capital_account" title="Capital account">Capital account</a></li> <li><a class="mw-selflink selflink">Comparative advantage</a></li> <li><a href="/wiki/Current_account_(balance_of_payments)" title="Current account (balance of payments)">Current account</a></li> <li><a href="/wiki/Export-oriented_industrialization" title="Export-oriented industrialization">Export-oriented industrialization</a></li> <li><a href="/wiki/Fair_trade" title="Fair trade">Fair trade</a></li> <li><a href="/wiki/Foreign_exchange_reserves" title="Foreign exchange reserves">Foreign exchange reserves</a></li> <li><a href="/wiki/Globalization" title="Globalization">Globalization</a></li> <li><a href="/wiki/Import_substitution_industrialization" title="Import substitution industrialization">Import substitution industrialization</a></li> <li><a href="/wiki/Net_capital_outflow" title="Net capital outflow">Net capital outflow</a></li> <li><a href="/wiki/Outsourcing" title="Outsourcing">Outsourcing</a></li> <li><a href="/wiki/Tariff" title="Tariff">Tariff</a></li> <li><a href="/wiki/Trade_justice" title="Trade justice">Trade justice</a></li> <li><a href="/wiki/Trade_war" title="Trade war">Trade war</a></li> <li><a href="/wiki/Trading_nation" title="Trading nation">Trading nation</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><div style="display: inline-block; line-height: 1.2em; padding: .1em 0;">Organizations<br />and policies</div></th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/International_Monetary_Fund" title="International Monetary Fund">International Monetary Fund</a></li> <li><a href="/wiki/United_Nations_Conference_on_Trade_and_Development" class="mw-redirect" title="United Nations Conference on Trade and Development">UN Conference on Trade and Development</a></li> <li><a href="/wiki/World_Bank_Group" title="World Bank Group">World Bank Group</a></li> <li><a href="/wiki/World_Trade_Organization" title="World Trade Organization">World Trade Organization</a> <ul><li><a href="/wiki/International_Trade_Centre" title="International Trade Centre">International Trade Centre</a></li></ul></li> <li><a href="/wiki/International_Chamber_of_Commerce" title="International Chamber of Commerce">International Chamber of Commerce</a></li> <li><a href="/wiki/Bilateral_investment_treaty" title="Bilateral investment treaty">Bilateral investment treaty</a></li> <li><a href="/wiki/Economic_integration" title="Economic integration">Economic integration</a></li> <li><a href="/wiki/Incoterms" title="Incoterms">Incoterms</a></li> <li><a href="/wiki/ATA_Carnet" title="ATA Carnet">ATA Carnet</a></li> <li><a href="/wiki/Free-trade_zone" title="Free-trade zone">Free-trade zone</a></li> <li><a href="/wiki/Special_economic_zone" title="Special economic zone">Special economic zone</a></li> <li><a href="/wiki/Trade_agreement" title="Trade agreement">Trade agreement</a></li> <li><a href="/wiki/Trade_barrier" title="Trade barrier">Trade barrier</a></li> <li><a href="/wiki/Trade_bloc" title="Trade bloc">Trade bloc</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Political_economy" title="Political economy">Political economy</a></th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Free_trade" title="Free trade">Free trade</a> (<a href="/wiki/Adam_Smith" title="Adam Smith">Adam Smith</a>, <i><a href="/wiki/The_Wealth_of_Nations" title="The Wealth of Nations">The Wealth of Nations</a></i>, <a href="/wiki/Repeal_of_the_Corn_Laws" class="mw-redirect" title="Repeal of the Corn Laws">Repeal of the Corn Laws</a>)</li> <li><a href="/wiki/Mercantilism" title="Mercantilism">Mercantilism</a></li> <li><a href="/wiki/Protectionism" title="Protectionism">Protectionism</a> (<a href="/wiki/Economic_nationalism" title="Economic nationalism">Economic nationalism</a>, <a href="/wiki/Autarky" title="Autarky">Autarky</a>)</li> <li><a href="/wiki/Dedollarisation" title="Dedollarisation">Dedollarisation</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Regional_organization" title="Regional organization">Regional organizations</a></th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"></div><table class="nowraplinks navbox-subgroup" style="border-spacing:0"><tbody><tr><th scope="row" class="navbox-group" style="width:1%">Americas</th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Andean_Community_of_Nations" class="mw-redirect" title="Andean Community of Nations">Andean Community of Nations</a></li> <li><a href="/wiki/Caribbean_Community" title="Caribbean Community">Caribbean Community</a></li> <li><a href="/wiki/Central_American_Integration_System" title="Central American Integration System">Central American Integration System</a></li> <li><a href="/wiki/Mercosur" title="Mercosur">Mercosur</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%">Asia-Pacific</th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Association_of_Southeast_Asian_Nations" class="mw-redirect" title="Association of Southeast Asian Nations">Association of Southeast Asian Nations</a></li> <li><a href="/wiki/Regional_Comprehensive_Economic_Partnership" title="Regional Comprehensive Economic Partnership">Regional Comprehensive Economic Partnership</a></li> <li><a href="/wiki/South_Asian_Association_for_Regional_Cooperation" title="South Asian Association for Regional Cooperation">South Asian Association for Regional Cooperation</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%">Europe, Central Asia, and North Asia</th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Customs_Union_of_Belarus,_Kazakhstan,_and_Russia" class="mw-redirect" title="Customs Union of Belarus, Kazakhstan, and Russia">Customs Union of Belarus, Kazakhstan, and Russia</a></li> <li><a href="/wiki/Eurasian_Economic_Union" title="Eurasian Economic Union">Eurasian Economic Union</a></li> <li><a href="/wiki/European_Union_Customs_Union" title="European Union Customs Union">European Union Customs Union</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%">Middle East and North Africa</th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Arab_Customs_Union" title="Arab Customs Union">Arab Customs Union</a></li> <li><a href="/wiki/Cooperation_Council_for_the_Arab_States_of_the_Gulf" class="mw-redirect" title="Cooperation Council for the Arab States of the Gulf">Cooperation Council for the Arab States of the Gulf</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%">Subsaharan Africa</th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/East_African_Community" title="East African Community">East African Community</a></li> <li><a href="/wiki/Economic_and_Monetary_Community_of_Central_Africa" class="mw-redirect" title="Economic and Monetary Community of Central Africa">Economic and Monetary Community of Central Africa</a></li> <li><a href="/wiki/Southern_African_Customs_Union" title="Southern African Customs Union">Southern African Customs Union</a></li> <li><a href="/wiki/West_African_Economic_and_Monetary_Union" class="mw-redirect" title="West African Economic and Monetary Union">West African Economic and Monetary Union</a></li></ul> </div></td></tr></tbody></table><div></div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/List_of_top_exporting_countries_by_product_category" title="List of top exporting countries by product category">Exports by product</a></th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/List_of_countries_by_aircraft_and_spacecraft_exports" title="List of countries by aircraft and spacecraft exports">Aircraft & Spacecraft</a></li> <li><a href="/wiki/List_of_countries_by_aircraft_component_exports" title="List of countries by aircraft component exports">Aircraft parts</a></li> <li><a href="/wiki/List_of_countries_by_aluminium_exports" title="List of countries by aluminium exports">Aluminium</a></li> <li><a href="/wiki/List_of_countries_by_automotive_component_exports" title="List of countries by automotive component exports">Car parts</a></li> <li><a href="/wiki/Coal#Major_exporters" title="Coal">Coal</a></li> <li><a href="/wiki/List_of_countries_by_coffee_exports" title="List of countries by coffee exports">Coffee</a></li> <li><a href="/wiki/List_of_countries_by_computer_exports" title="List of countries by computer exports">Computers</a></li> <li><a href="/wiki/List_of_countries_by_copper_exports" title="List of countries by copper exports">Copper</a></li> <li><a href="/wiki/List_of_countries_by_maize_exports" title="List of countries by maize exports">Corn</a></li> <li><a href="/wiki/List_of_countries_by_cotton_exports" class="mw-redirect" title="List of countries by cotton exports">Cotton</a></li> <li><a href="/wiki/List_of_countries_by_diamond_exports" title="List of countries by diamond exports">Diamonds</a></li> <li><a href="/wiki/List_of_countries_by_electricity_exports" class="mw-redirect" title="List of countries by electricity exports">Electricity</a></li> <li><a href="/wiki/List_of_countries_by_electronics_exports" title="List of countries by electronics exports">Electronics</a></li> <li><a href="/wiki/List_of_countries_by_engine_exports" title="List of countries by engine exports">Engines</a></li> <li><a href="/wiki/List_of_countries_by_gas_turbine_exports" title="List of countries by gas turbine exports">Gas turbines</a></li> <li><a href="/wiki/List_of_countries_by_gold_exports" title="List of countries by gold exports">Gold</a></li> <li><a href="/wiki/List_of_countries_by_integrated_circuit_exports" title="List of countries by integrated circuit exports">Integrated circuits</a></li> <li><a href="/wiki/Iron-ore_exports_by_country" class="mw-redirect" title="Iron-ore exports by country">Iron ore</a></li> <li><a href="/wiki/List_of_countries_by_live_animal_exports" title="List of countries by live animal exports">Live animals</a></li> <li><a href="/wiki/List_of_countries_by_natural_gas_exports" title="List of countries by natural gas exports">Natural gas</a></li> <li><a href="/wiki/List_of_countries_by_oil_exports" title="List of countries by oil exports">Oil</a></li> <li><a href="/wiki/List_of_countries_by_refined_petroleum_exports" title="List of countries by refined petroleum exports">Petrol</a></li> <li><a href="/wiki/List_of_countries_by_pharmaceutical_exports" title="List of countries by pharmaceutical exports">Pharmaceuticals</a></li> <li><a href="/wiki/List_of_countries_by_photovoltaics_exports" title="List of countries by photovoltaics exports">Photovoltaics</a></li> <li><a href="/wiki/List_of_countries_by_ship_exports" title="List of countries by ship exports">Ships</a></li> <li><a href="/wiki/List_of_countries_by_steel_production#Exports" title="List of countries by steel production">Steel</a></li> <li><a href="/wiki/List_of_countries_by_telecommunications_equipment_exports" title="List of countries by telecommunications equipment exports">Telecommunications equipment</a></li> <li><a href="/wiki/List_of_countries_by_telephone_exports" title="List of countries by telephone exports">Telephones</a></li> <li><a href="/wiki/List_of_countries_by_textile_exports" title="List of countries by textile exports">Textiles</a></li> <li><a href="/wiki/List_of_countries_by_truck_exports" title="List of countries by truck exports">Trucks</a></li> <li><a href="/wiki/List_of_countries_by_vehicle_exports" title="List of countries by vehicle exports">Vehicles</a></li> <li><a href="/wiki/List_of_countries_by_wheat_exports" title="List of countries by wheat exports">Wheat</a></li> <li><a href="/wiki/Wine#Exporting_countries" title="Wine">Wine</a></li></ul> </div></td></tr><tr><td class="navbox-abovebelow" colspan="2" style="font-weight:bold;"><div> <ul><li><span class="noviewer" typeof="mw:File"><span title="Category"><img alt="" src="//upload.wikimedia.org/wikipedia/en/thumb/9/96/Symbol_category_class.svg/16px-Symbol_category_class.svg.png" decoding="async" width="16" height="16" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/en/thumb/9/96/Symbol_category_class.svg/23px-Symbol_category_class.svg.png 1.5x, //upload.wikimedia.org/wikipedia/en/thumb/9/96/Symbol_category_class.svg/31px-Symbol_category_class.svg.png 2x" data-file-width="180" data-file-height="185" /></span></span> <a href="/wiki/Category:International_trade" title="Category:International trade">Category</a></li> <li><span class="noviewer" typeof="mw:File"><span title="Commons page"><img alt="" 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