Skip to main content

Über dieses Buch

This book offers a comprehensive and insightful reflection on David Ricardo’s ingenious theory of international trade. Divided into three parts, Part I presents the “birthday boy”, his concept and the many applications and insights that have been derived from it, particularly in modern times. Part II explores in depth important aspects of the Ricardian trade theory through the eyes and experience of leading experts on international trade theory, taking into account the latest research in the field. Lastly, Part III discusses critique and shortcomings of the existing trade theory and proposes future developments in the light of the current globalization challenges.



Chapter 1. Introduction: Celebrating 200 Years of Ricardian Trade Theory

We argue that it is rather unusual in economics that a theory, after 200 years, is still relevant and so important. We contribute this to the brilliance of the Ricardian idea and its simplicity. We show that the Ricardian trade theory was always present in the field of international trade, but even experienced an increase in its importance in the last 50 years. We then briefly describe how we celebrated the Ricardian Year 2017. The scientific conference on May 12, 2017 was the highlight. It is the pillar of this book. The chapter ends with a short presentation of the idea and structure of the book.
Ronald W. Jones, Rolf Weder

Part I


Chapter 2. David Ricardo: His Personality, His Times and His Principles

This chapter introduces the reader to the life and the early work of David Ricardo. The first section gives a brief portrait of Ricardo as successful businessman, political economist and Member of Parliament. The second section elucidates Ricardo’s emerging theory of international trade in the light of war, social distress and the Corn Laws. Finally, the third section traces the transition from Ricardo’s early work to his main opus On the Principles of Political Economy and Taxation.
Thomas Gerber

Chapter 3. David Ricardo’s “On Foreign Trade”: The Original Idea

In this chapter we lead the reader through some of the important passages written by David Ricardo in the famous chapter “On Foreign Trade” in his book On the Principles of Political Economy and Taxation. We have a detailed look into Ricardo’s three paragraphs in which he developed the basis for international trade theory, using the numerical example of Portugal and England exchanging wine and cloth. Further aspects of his theory, his way of thinking and his methodology are also discussed. We follow closely Ricardo’s own words and interpret different parts of his brilliant contribution.
Thomas Gerber, Rolf Weder

Chapter 4. The Standard Ricardian Trade Model

This chapter presents the standard Ricardian trade theory. It introduces the reader to the 2 × 2 model (two countries, two goods, one factor of production) and shows the effects of trade liberalization on the pattern of trade, production and wages. The extension from two to many goods (2 × N model) allows for an introduction of transportation costs as a basis to study the co-existence of internationally traded and nontraded goods as well as so-called Dutch-Disease effects. With, finally, the extension from many to very many goods (i.e., to a continuum of goods), the reader is introduced to the Dornbusch-Fischer-Samuelson (1977) model that is widely used in international trade theory.
Rolf Weder

Chapter 5. The Ricardian Trade Model: Implications and Applications

This chapter argues that the Ricardian trade theory’s small-scale general equilibrium characteristics are helpful in understanding the complex world economy and in uncovering some of the misconceptions of the globalization debate. First, it is shown that the main predictions of the model seem roughly in line with empirical observations regarding the pattern of trade and relative wages. Second, it is explained why countries do not compete in the way companies do and that wage comparisons between the North and the South that focus on export industries are misguided. Third, the model is applied to the topical question of how an improvement in productivity abroad affects the home country.
Rolf Weder

Part II


Chapter 6. The Main Contribution of the Ricardian Trade Theory

In the Ricardian trade model, even a country with no absolute advantage in the production of any commodity can gain from international trade, specializing in the production of the good in which it is has a comparative advantage. A three-country, three-commodity setting with given numbers for each country’s labor requirement is used to illustrate possible patterns of trade. More recent trade models, such as the Swedish contribution by Heckscher and Ohlin, enriched the basic form of the Ricardian model by allowing more factors of production and differences in the endowments between countries and capital/labor ratios between commodities. However, the basic importance of the power of comparative advantage as the key to possible international trade patterns is maintained. The Ricardian model, with its basic simplicities, remains a popular set of explanations for fundamental features of international trade.
Ronald W. Jones

Chapter 7. Comments on the “The Main Contribution of the Ricardian Trade Theory” by Ronald W. Jones

The aim of this chapter is a critical assessment of the Ricardian model and its usefulness in research. It starts with explaining the analytical difficulties by which the two-by-two model is characterized in comparison to an endowment model. Further, it is examined why it is challenging to add further dimensions and extend the basic example to a three-by-three case. Three possible solutions of the challenges related to many-good and many-country cases are discussed. Firstly, understand the possible efficient outcomes of these cases based on Jones (The Review of Economic Studies 28(3):161–175, 1961). Secondly, introduce the many-good-continuum model of Dornbusch, Fischer and Samuelson (The American Economic Review 67(5):823–839, 1977). Thirdly, find an empirical approach such as Eaton and Kortum (Econometrica 70(5):1741–1779, 2002).
M. Scott Taylor

Chapter 8. Discussion About “The Main Contribution of the Ricardian Trade Theory”

This chapter includes the discussion of the paper “The Main Contribution of the Ricardian Trade Theory” by Ronald W. Jones (Chap. 6 of this book) and of the comments to this paper by M. Scott Taylor (Chap. 7 of this book). It is based on the transcription of the discussion. The session was chaired by Harris Dellas, Professor in International and Monetary Economics at the University of Bern. He has a PhD from the University of Rochester.
Harris Dellas

Chapter 9. Mill and Ricardo: The Genesis of Comparative Advantage

Britain suspended the gold standard in its war with France in 1797. This led to an inflation controversy that created Ricardo the economist. He entered the discussion in 1809 arguing that the inflation was caused by too much paper money. His impressive argument attracted the attention of James Mill and Thomas Malthus who both became life-long friends and correspondents. In its early days economics was unsettled with vague terms and loose reasoning. James Mill, impressed with Ricardo’s logical mind and brilliance, convinced him to write a book to settle the issues. It was during the writing of this book in 1816 that Ricardo discovered comparative advantage. I tell the story.
Roy J. Ruffin

Chapter 10. Comments on “Mill and Ricardo: The Genesis of Comparative Advantage” by Roy J. Ruffin

While economists tend to interpret the appearance of a new theoretical frame as “discovery” or as “invention,” historians prefer to consider them as the result of pressures from within their cultural context in which they originate. In this sense, there are very specific reasons why Ricardo’s Comparative Advantage emerged around 1816–1817. These reasons have a biographical (why Ricardo and not someone else), a historical (why in 1816–1817, and not before), or a philosophical background (why a Comparative, and not the already pre-existing Absolute Advantage). These reasons are shortly presented in this response to Roy J. Ruffin’s paper, printed as Chap. 9 of this book.
Antonio Loprieno

Chapter 11. Discussion on “Mill and Ricardo: The Genesis of Comparative Advantage”

This chapter includes the discussion of the paper “Mill and Ricardo: The Genesis of Comparative Advantage” by Roy J. Ruffin (Chap. 9 of this book) and of the comments to this paper by Antonio Loprieno (Chap. 10 of this book). It is based on the transcription of the discussion. The session was chaired by Carsten Hefeker, Professor of Economic Policy at the University of Siegen. He has a PhD from the University of Konstanz.
Carsten Hefeker

Chapter 12. Putting Ricardian Trade Theory to Work in 2017: Current Empirical Analyses

This chapter discusses extensions of the simple 2 × 2 Ricardo model. In particular, it considers extensions to several goods and countries, the possibility of international technology diffusion, and the possibility of imperfect labor mobility between sectors. The chapter shows how these extensions make the Ricardian framework a useful tool for understanding data, and, thus, help to put Ricardian Trade Theory (back) to work.
Jonathan Eaton

Chapter 13. Comments on “Putting Ricardian Trade Theory to Work in 2017: Current Empirical Analyses” by Jonathan Eaton

This set of comments addresses some generic questions and problems of the “new” quantitative work. It is geared towards a reader looking at the respective work from an empirical rather than a theoretical angle.
Peter H. Egger

Chapter 14. Short Discussion About “Putting Ricardian Trade Theory to Work in 2017: Current Empirical Analyses”

This chapter includes the short discussion of the paper “Putting Ricardian Trade Theory to Work in 2017: Current Empirical Analyses” by Jonathan Eaton (Chap. 12 of this book) and of the comments to this paper by Peter H. Egger (Chap. 13 of this book). It is based on the transcription of the discussion. The session was chaired by Nicolas Schmitt, Professor of International Trade and Industrial Organization at Simon Fraser University. He has a PhD from the University of Toronto.
Nicolas Schmitt

Chapter 15. The Relevance of Ricardian Trade Theory for the Political Economy of Trade Policy

Ricardo’s contribution to trade theory is commonly identified with the single-factor model that bears his name. But Ricardo’s contribution to the theory of rent is also fundamental to the currently active literature on the political economy of trade policy. The multi-factor model often employed in this literature is thoroughly Ricardian.
Wilfred J. Ethier

Chapter 16. What Next for Ricardo? Incorporating More Trade Distortions

Based on a dataset of over 11,000 government announcements and measures implemented, it is shown that trade distortions faced by exporters from G-20 nations have grown markedly since November 2008. In terms of trade coverage, the largest trade distortions are export incentives. Research findings concerning the impact of these export incentives estimated using modern versions of the Ricardian model are discussed.
Simon Evenett

Chapter 17. 200 Years of Ricardian Theory: The Missing Dynamics

In recent years, trade economists have started to incorporate dynamics in international trade models, using frameworks that are at their core Ricardian. Using a quantitative model to estimate the effect of dynamic knowledge innovation, I argue that reducing trade barriers leads to large gains from trade as a result of these dynamics. I illustrate these effects with a quantification of the impact of trade barrier reduction between Latin American countries. Productivity levels and their distribution in space are estimated to be much greater when including the dynamic effects that result from the trade liberalization.
Esteban Rossi-Hansberg

Chapter 18. Final Panel Discussion: Wilfred J. Ethier, Simon Evenett, Esteban Rossi-Hansberg and Rolf Weder

This chapter records the panel discussion that took place with Wilfred J. Ethier, Simon Evenett and Esteban Rossi-Hansberg, chaired by Rolf Weder. It includes comments and questions from the audience regarding these presentations (Chaps. 15, 16 and 17, respectively) and emphasizes the main challenges faced by Ricardian trade theory today. It deals with topics such as how to develop the Ricardian model to reflect contemporary issues, the backlash against international trade within societies, the potential long-run impact of President Trump’s policies on international trade, the implications of uncertainty for production and trade patterns, the testing of the proposition that there are gains from trade, and the subject of international trade and migration.
Andrew Lee

Part III


Chapter 19. Current Challenges of Globalization in the Light of the Ricardian Trade Theory

This concluding chapter of the book starts with the observation that many problems in the world economy are not or only loosely related to globalization and thus could be solved by self-responsible countries. An important challenge of globalization is, however, caused by the frictions and the churning process of international trade that requires constant adjustments and flexibility by individuals. In the first part, we touch on this aspect in the light of an increasing fragmentation of the production process. In the second part, we extend the Ricardian model by allowing for international mobility of some inputs and argue that this fosters the churning process. In the third part, we emphasize that as countries are countries for a reason, they are likely to continue limiting the accessibility of some of their markets. We conclude that the study of “markets with overlapping domains” lies at the heart of Ricardian trade theory.
Ronald W. Jones, Rolf Weder

Chapter 20. On Foreign Trade

This chapter contains a reprint of David Ricardo’s Chapter VII “On Foreign Trade”. The reprint is from the third edition of On the Principles of Political Economy and Taxation. Note that this is Ricardo’s final version of his text that remained unchanged. The book was published by John Murray in London in 1821 with an edition of 1000 copies. The first edition appeared on April 19, 1817 by the same publisher.
David Ricardo
Weitere Informationen

Premium Partner