Economics Dictionary of ArgumentsHome
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| Ricardian Model: The Ricardian Model is an economic theory of international trade. It argues that countries benefit from specializing in and exporting goods where they have a comparative advantage, meaning they produce those goods at a lower opportunity cost. This is driven by differences in technology and labor productivity across countries, leading to mutual gains from trade even if one country is absolutely more efficient in all goods. See also Economic models, International trade._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Robert C. Feenstra on Ricardian Model - Dictionary of Arguments
Feenstra I 1-1 Ricardian Model/International trade/Feenstra: The Ricardian model introduces us to the idea that technological differences across countries matter. VsHeckscher-Ohlin: In comparison, the Heckscher-Ohlin model dispenses with the notion of technological differences and instead show how factor endowments form the basis for trade. While this may be fine in theory, it performs very poorly in practice: (…) the Heckscher-Ohlin model is hopelessly inadequate as an explanation for historical or modern trade patterns unless we allow for technological differences across countries. >Heckscher-Ohlin model, >Economic models. For this reason, the Ricardian model is as relevant today as it has always been. Feenstra I 1-2 Ricardian model: Indexing goods by the subscript i, let ai denote the labor needed per unit of production of each good at home, while * i a is the labor need per unit of production in the foreign country, i=1,2. The total labor force at home is L and abroad is L*. Labor is perfectly mobile between the industries in each country, but immobile across countries. This means that both goods are produced in the home country only if the wages earned in the two industries are the same. Autarky: (…) the home autarky relative price of good 1 is lower than that abroad. Feenstra I 1-5 Comparative advantage: (…) trade patterns are determined by comparative advantage, which is a deep insight from the Ricardian model. This occurs even if one country has an absolute disadvantage in both goods, (…) so that more labor is needed per unit of production of either good at home than abroad. The reason that it is still possible for the home country to export is that its wages will adjust to reflect ist productivities: under free trade, its wages are lower than those abroad. Thus, while trade patterns in the Ricardian model are determined by comparative advantage, the level of wages across countries is determined by absolute advantage. >Comparative advantage, >Wages, >International trade._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Feenstra I Robert C. Feenstra Advanced International Trade University of California, Davis and National Bureau of Economic Research 2002 |
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