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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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