International Trade Theory. The Theory Term Paper

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In the real world, most markets are far from fully competitive, labor-productivity within a country varies over time and full employment is just a dream in most capitalist economies. (Suranovic 1997)

Given the list of such 'unrealistic' assumptions made in the model, it is easy for us to dismiss the results of comparative advantage altogether or to accept it with a large dose of skepticism. But would such dismissal be justified? It is prudent to remember that almost all economic theories operate under a large number of 'unrealistic' assumptions that do not apply to the much more complex real world. In fact, we deliberately simplify the variables in economics in order to be able to construct models and to carry out analysis.

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Such simplification does not make all economic analysis redundant. It should also be remembered that comparative advantage and international trade would work to the benefit of all individuals and countries only if certain conditions are fulfilled, e.g., all resources are fully employed worldwide, these resources are allocated to each country's competitive advantage industry(s) and all countries are allowed to trade freely. Moreover, like most other economic theories, the model of comparative advantage does not give us a definite answer about the benefits of trade between countries -- it only points to certain likely possibilities that may occur as a result of increased international trade. (Ibid).....

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