Does the comparative advantage still work?
What is the “comparative cost advantage” according to David Ricardo?
In 1817 David Ricardo formulated it in his Treatise “on the principles of political economy and taxation"The theory of" comparative cost advantages ", with which he further developed the model of" absolute cost advantages "established by Adam Smith around 40 years earlier.
“Absolute cost advantage” means that one country (or one person) can produce more cost-effectively than another in all areas considered.
Today's deficits are tomorrow's taxes. "
The concept of “comparative cost advantage” means that one country (a person, a company) is able to produce in a certain area at a comparatively lower cost than another country. Economic theory says that countries (individuals, companies) would do well to specialize in the field in which they are comparatively most productive.
David Ricardo formulated his theory with a view to foreign trade. Even today it is one of the foundations of the international division of labor: the best specializes in the area of production in which they have the greatest comparative cost advantage; the others take what is left: in theory, if only the best produced at a time, productivity would inevitably increase; but then the others would be condemned to inactivity.
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