Comparative advantage

A central concept in international trade which holds that a country or region should specialize in the production and export of those goods and services that it can produce relatively more efficiently that others goods or services, and import those goods and services in which it has a comparative disadvantage. This theory was first propounded by the British economist David Ricardo in 1817 as a basis for increasing the economic welfare of a population through international trade. The comparative advantage theory normally favours specialized production in a country based on intensive utilization of those factors of production in which the country is relatively well endowed (such as raw materials, fertile land or skilled labour). See also absolute advantage.

Related entries