Comparative Advantage Labor Productivity Essay

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Ricardian Model

As the world has been increasingly globalizing, international trade and the different factors that facilitate trade have become of critical importance. Many countries and labour markets receive many benefits from trade and specialization. However the mechanisms that constitute a comparative advantage and determining which labour markets are suited for different production opportunities is still largely debated. David Ricardo proposed that technology could explain many of the labour variations however this does not seem to account for all of the differences in productivity that are found in the real world. This analysis will briefly introduce the Ricardian model as well as discuss some of the factors that constitute labor productivity in international markets today.

Classical Models

Adam Smith first proposed the concept of absolute advantage in the Wealth of Nations to explain the basis for the advantages to be found in international trade. Smith believed that the value of labor was relatively static in his model however. Yet, using this model Smith explained how all countries could benefit through specialization and trade. Later, David Ricardo expanded on the concept of absolute advantage by explaining how a country could also have a comparative advantage in their production specialization.

Ricardo's concept added the idea that not all labor was equally valuable for different tasks and the rate of productivity of labour was an important consideration.

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For example, some labour pools were more competent at certain tasks and could produce goods or services at higher rates than other areas. He believed that technology was one of the most important factors for labour productivity and you could expect to find more productive labour in societies that were more technologically advanced. However, by looking at the way that international trade works today it is apparent that technology is not the driving factor.

For example, consider the United States that is among the most technologically advanced societies in the world. If technology was a driver that could predict a comparative advantage for production, then you would expect the United States to be a top producer of goods. However, the United States manufacturing base has steadily diminished over the course of roughly half a century during a period that also saw its technological capabilities skyrocket. Obviously, technology is not the only factor that drives production.

Discussion

Some of the more modern international trade theories have tried to incorporate more factors that can explain the differences in….....

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