Comparative Advantage Theory

Discipline: Economics

Comparative advantage theory is introduced by the Scottish economist Adam Smith (1723-1790).

Comparative advantage theory is an international trade theory. It asserts that individuals or nations trade because they have superior productivity in particular industries, and that they should produce and export goods for which they possess a comparative advantage and import others which other nations possess a comparative advantage for.

Governments may attempt to counter comparative advantage by erecting trade barriers, allowing young, uncompetitive, industries enough time to become established.

Also see: absolute advantage theory, comparative costs, Heckscher-Ohlin trade theory, technological gap theory

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