Theory of Comparative Advantage

Commerce

The theory of comparative advantage refers to the concept of productivity in the economy, according to which nations have to specialize and export what they do best.

It is one of the theories of the economist David Ricardo (United Kingdom, 1772 - 1823). It is argued in contrast to the theory of absolute advantage.

The theory of absolute advantage indicates that a country must specialize and export what it knows how to do better than the rest. Since it has an advantage over the rest of the countries with which it markets. Meanwhile, the theory of comparative advantage refers not only to exporting that good in which a country is more productive, but also calls for specializing and exporting those goods or sectors that are more productive with respect to others internally. That is, taking into account the characteristics of the country.

The invisible hand

Differences between the theory of comparative and absolute advantage

The big difference between the two is the fulcrum on which they have to be based. While Adam Smith and absolute advantage point out that a nation should only focus on what it is capable of doing better than others, in a more productive way, lower cost, greater knowledge and efficiency, David Ricardo says that each nation or subject should promote and export those goods or sectors that, within its economy, are more productive.

The fulcrum of absolute theories is compared with the rest of the countries. While the comparative advantages are measured with oneself with respect to other sectors.

These liberal theories are related to free trade and the ineffectiveness of tariffs. From this point of view, tariffs are seen as elements that violate productivity and efficiency. Since they force countries to pay more for certain goods that importing them would be cheaper than producing them, and where the productivity factor plays an important role.

The free market promotes the survival of the best good in the market. They try to show that with international trade the welfare of countries increases.

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