David Ricardo’s Model of International Free Trade Essay

Summary

Comparative advantage is an important aspect of economics, and it has made many economists design studies aimed at understanding the concept in a better manner. Although the aspect seems to be easy, many international economists and professors have admitted that it is a relatively difficult issue that must be well understood by managers and nations in order to engage in profitable business activities. Despite the fact that a Ricardian model is a simple approach with regard to international free trade, distinguished economists have argued that the approach to trade looks oversimplified. In fact, the people who often term the model simple are casual readers who have no deep interest in understanding the impact of the aspect of international trade.

Goldsmith contends that David Ricardo focused on specialization, which countries could adopt to ensure that they succeed in their business activities. Goldsmith also argues that Ricardo proposed that nations should conduct business activities that have a high chance of achieving comparative advantage. Many economists who have reviewed the Ricardian model have not offered satisfactory answers in response to several questions raised with regard to the issue.

The assertion by Michael Lind about the theory of free international trade is not founded on any economic principles. In fact, the statement by the renowned intellectual writer does not contain any economic fact. For example, the writer ignores the use of facts by assuming that the 30% improvement in production in the US was achieved in all sectors of the economy. This is a dangerous assumption that could lead to inaccurate projections in the future because economists focus on past events to predict economic performances in the future. The fact is that the increase in productivity was unequally distributed among the different sectors of the economy. For example, the business sector recorded only a 13% increase in production.

Regardless of the flaws made by several people when explaining the Ricardian model, it could be concluded the theory has three essential assumptions. First, it assumes that salaries are influenced by the availability of labor in the market. However, the problem with the assumption is that professionals and non-professionals seem to view trade with respect to labor differently. Second, the model hypothesizes that all nations achieve full employment levels for their citizens. Third, there is an assumption that trade between the two countries is balanced. The hypotheses are not true in a contemporary world that is characterized by several market trends. Thus, it is required that people should shift their thinking from the traditional-based approaches to modern thinking with regard to free trade.

My comments

It amazes that many people could misunderstand a simple economic concept that has important implications for trade. It is apparent that both professionals and non-professionals fail to interpret the Ricardian model because they do not interact with modern ideas that focus on current issues in free trade. The three assumptions proposed by David Ricardo are not true in the modern world. In fact, since the model was proposed, several other economic principles have been suggested, which have rendered Ricardo’s assumptions obsolete. It would be important for all people who wish to comment on economic issues to be updated with the aim of avoiding misleading the public. For example, commentators should learn about modern trends that are impacting the comparative advantage of organizations and nations.

David Ricardo’s Model of International Free Trade

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