Why the theory of comparative advantage is wrong. (1st January 2011)

• Record Type: Journal Article
• Authors: Fletcher, Ian
• Is Part Of: International journal of pluralism and economics education. Volume 2:Number 4(2011)
• Page Start: 421
• Page End: 429
• Publication Date: 2011-01-01
• Subjects: free trade -- comparative advantage -- David Ricardo -- competitiveness -- trade -- international trade -- factors mobility -- capital mobility -- income inequality; Economics -- Study and teaching -- Periodicals; Pluralism -- Periodicals; 330.071
• DOI: 10.1504/IJPEE.2011.046029
• Languages: English
• ISSNs: 1757-5648

Abstract

The theory of comparative advantage is widely misunderstood to demonstrate the universal superiority of free trade. In fact, the theory depends upon a number of key assumptions and fails if they are relaxed. Empirically, many of these assumptions are highly questionable, if not demonstrably false. Among them are an absence of externalities, a lack of international capital mobility, and no income-inequality effects. Also included are assumptions about optimal short- and long-term growth strategies being identical and domestic factor mobility being costless.