Comparative Advantage Theory David Ricardo’s monumental 1817 book entitled “On the Principles of Political Economy and Taxation” outlined a new economic theory which we have now come to call comparative advantage theory. This theory stood in stark contrast to the absolute advantage theory pioneered earlier by Adam Smith. Today, this trade theory is not only valid, but one of the longest lasting economic theories to still hold water within our complex, contemporary world-economy. Nevertheless, this theory has its limitations just like any other economic law. This paper will examine the nature of comparative advantage theory and investigate how certain cultural, physical, economic, financial, or political impediments might prevent the...The end:
.....liquid capital can be in our current environment. This liquidity transforms comparative advantage in our current society into something more closely related to absolute advantage. Because of this, many economists feel that Ricardo’s theory in its pure form is not terribly applicable today. However, newer more complex theories have emerged to help revise comparative theory and make it more germane to current economic scenarios. One of these such models is the Heckscher-Olin model from the early twentieth century. Bibliography Bowden, E. V. (1978). Abridged economics : the science of common sense. Cincinnati, South-western Pub. Co. Salvatore, D. (2009). "The challenges to the liberal trading system." Journal of Policy Modeling 31(4): 593-599.