The prinicple of comparative advantage suggests that society benefits from specialisation and free trade.
David Ricardo developed the principle of comparative advantage. Heckscher, Ohlin and Samuelson then later developed the theory. They all argued that all countries have different factor endowments of labour, land and capital inputs. Countries should be able to specialise in and export products that they can effectively produce. Comparative advantage dictates that international trade happens when there are differences in the price of production. World trade is the result of non-price competition between countries.
The gains of specialisation depend on comparative advantage. World productio…
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- The prinicple of comparative advantage suggests that society benefits from specialisation and free trade.
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