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Ricardian Theory Analysis

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Nevertheless, Adam Smith (1976) and David Ricardo (1817),there came a strong wave of arguments against of the idea of mercantilists view by classical school of thoughts, classical school basically contend that it is not through high restriction of imports, but it is the expansion of stocks of human and man natural resource that boost the wealth of nation, their line of argument relies on the concept of absolute advantage Adam smith and comparative advantage (Ricardo).According to the former, a nation can only better off if only if the other is made worth off, otherwise trade will not be possible, but the latter advocate that a nation engaged in production and trade activities in the commodity where it has comparative advantage. The two are …show more content…

They focused on “factor endowments” variability as the source of international trade (Krugman and Obstsfeld, 2005). The following are the crucial assumptions of HO theory: there are only two factors of production i.e. labor and capital, there are only two countries and two different factors of endowment (the one is capital endowment rich country and the other is labor endowment rich country), the production of two commodities have different factor intensities but at a common factor price, there is a perfect competition between the goods and the factor market, there is no transaction cost and labor and capital are perfectly mobile between firms within the same …show more content…

Most macroeconomic theorists and policy makers in Developed Countries rapidly embraced the new wisdom, in the belief that by following this scheme, their countries would achieve or regain the high rates of growth of the past. Each strategy has been subject of an extensive theoretical survey and that the literature examining the relationship between trade and growth has increased substantially in the last decade with the drive provided by the endogenous growth theory. However, it is not the intention of the present study top participates in or Contributes to the discussion concerning the advantages and disadvantages of both economic strategies, which recently gained a new impetus Frankel and Romer (1999).accelerate economic growth.
Most, international trade and development theories depicts a positive relationship between trade and economic growth, right from classical comparative advantage model of David Ricardo, the neoclassical model of Heckscher and Ohlin, to the contemporary endogenous growth models. Although the various models assume that different factors cause the trade, but the end result depicts improvement in the output and

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For any country that wants to survive in the toughest of times, they need to have good trading capabilities. Very few countries are able to sustain themselves without indulging in intensive trade with other countries. Trading has been considered a good thing in the past, but with the changing world, there are doubts about the benefits of trading. There are some factors that lead to the development of trade networks between countries. When people started to settle in larger towns, the idea that you had to produce absolutely everything for survival, began to fade.

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Mercantilism is the theory or policy that started in the 1600’s. It is a system in which trade generates money and profitable balances. Mercantilism was introduced to the colonies by England. They passed many laws such as the Navigation Laws, which gave them control to our trade. This affected the colonies because any trade done with Europe had to first pass through England.

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In the essay, “The Peter Principle”, Laurence J. Peter and Raymond Hull argue that no matter what the job or position is, there comes a time where every job gets filled by someone who isn’t competent enough to fulfill their role completely. This article is extracted from the book called The Peter Principle: Why Things Always Go Wrong. With having every right to speak about the issue, Peter and Hull specified certain examples to convey their point clearly. Laurence Peter was a Canadian educator and hierarchiologist and Raymond Hull was a Canadian playwright, television screenwriter and lecturer. Laurence Peter also published The Peter Plan and Peter’s Almanac.

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Adam Smith is an 18th-century philosopher and free-market economist. He is known as the father of economics and is famous for his ideas about the efficiency of the division of labor and the societal benefits of individuals ' pursuit of their own self-interest. Smith is best known for two classic works: The Theory of Moral Sentiments, and An Inquiry into the Nature and Causes of the Wealth of Nations. The latter, usually known as The Wealth of Nations, is the first modern work of economics and the book which is considered in this research. This research will discuss chapter four of The Wealth of Nations (WN), specifically Smith’s paragraph of water diamond paradox.

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David Ricardo’s work “On The Principles of Political Economy and Taxation” written in 1817 is the example of classical writings about economics. The point Ricardo makes in Chapter 7 “On Foreign Trade” is generally that trade is beneficial and a basis for trade is comparative advantage (1817). The essay states that comparative advantage can be a reason for international trade; however there are still problems with its implication in practice. To prove that this paper will first explain Ricardo’s comparative advantage theory. Second, it will provide an example of Kazakhstan and Russia for more explanation.

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