The Law of Comparative Advantage as a Basis for Understanding Essay

The Law of comparative degree Advantage as a Basis for Understanding International Trade - Essay ExampleIn addition, comparative good as a basis for understanding international plow is limited by the distance between the trading partners in that respectby increasing the transaction cost. entranceway Since the law of comparative advantage was introduced by David Ricardo in 1817, it has been used as a basis for understanding international trade. The law explained that countries should concentrate in producing what they take up and let other(a)s do what they do best. The law is based on the premises that different countries have varying endowment and therefore those countries less endowed on production of a certain good should buy from more endowed countries thereby leading to more gains in trade. Ricardo demonstrated this law by gift the example of cloth and wine production between Portugal and England. Portugal is highly endowed in the production of the two and therefore Portug al would have to export the two. On the other hand, England would have to import the two goods thereby failing to gain from trade. Given that comparative advantage is based on relative operation costs, doing some things is relatively more beneficial than others (Comparative advantage Doing what you do best, 2011, p. 32). ... 82). Although comparative remains a critical determinant of trade, OECD countries are more similar economically and therefore trade based on comparative advantage may not find application in current international trade (Comparative advantage Doing what you do best, 2011, p. 32). Despite the economic similarities among OECD countries, there are some differences which can drive trade based on comparative advantage. Moreover, there are remarkable differences between OECD countries and non-OECD countries and between non-OECD. Consequently, applicability of the comparative advantage could be more pronounced in North to South trade and South-South trade rather than i t is for the North to North trade (Comparative advantage Doing what you do best, 2011, p. 32). In addition to the only one factor of production proposed by Ricardo, productive of the country is influenced by physical capital, level of education and availability of credit. Heckscher-Ohlin contradicts the argument of Ricardo and argues that varied comparative advantage among countries emerges due to differences in the abundance of factors and the military posture with which the goods rely on those factors (Morrow, 2010, p. 139). This paper seeks to analyze seeks to analyze the application of Ricardos and Heckscher-Ohlin law of comparative advantage to influence international trade and assess the terminus to which international trade is affected by comparative advantage. International trade and comparative advantage based on Ricardos and Heckscher-Ohlin trade theories Production levels ball over demonstrate heterogeneity and specialization (Kamery, 2004, p. 115). For instance, US pr oduces over 35 percent of total