Since 1817, economists have attempted to generalize the Ricardian model and derive the principle of comparative advantage in broader settings, most notably in the neoclassical " specific factors"
2.
:: : No . This is a common misconception, but careful analysis of the principle of comparative advantage shows that even where the economies are not evenly matched there are still advantages for both countries.
3.
Ricardo was the first to state and prove the principle of comparative advantage, according to which each country should specialize in producing and exporting goods in that it has a lower " relative " cost of production, rather relying only on its own production.
4.
Nonetheless, economists like Alan Deardorff, Avinash Dixit, Gottfried Haberler, and Victor D . Norman have responded with weaker generalizations of the principle of comparative advantage, in which countries will only " tend " to export goods for which they have a comparative advantage.
5.
In 1987 he quipped that, " If there were an Economist's Creed, it would surely contain the affirmations'I understand the Principle of Comparative Advantage'and'I advocate Free Trade'. " In the same article, Krugman argues that, given the findings of New Trade Theory, " [ free trade ] has shifted from optimum to reasonable rule of thumb . . . it can never again be asserted as the policy that economic theory tells us is always right . " However, Krugman generally favored free trade given the enormous political costs of actively engaging in strategic trade policy and because there is no clear method for a government to discover which industries will ultimately yield positive returns.
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