Theory of comparative advantage
Teoría de la ventaja comparativa
- Date
- 1817 · confidence high
- Place
- London, England, United Kingdom
- Credited to
- David Ricardo
- Field
- Knowledge & symbols
What was discovered
In his work 'On the Principles of Political Economy and Taxation' (1817), economist David Ricardo showed that two countries mutually benefit from trade if each specializes in what it can produce at a relatively lower opportunity cost, even if one is more efficient at everything, laying the foundations of international trade theory.
It is one of the most cited yet counterintuitive results in economics; its applicability to a world with capital and labor mobile between countries remains debated.
What it led to
- the theoretical foundation of international free trade
- the economic justification for productive specialization among countries
- the basis of modern international trade models (Heckscher-Ohlin and later)