Comparative advantage or sophisticated restrain in the international trade of EU?

Nenovski, Tome and Makrevska, Elena (2012): Comparative advantage or sophisticated restrain in the international trade of EU? Forthcoming in: Globalization, Development, Public Policy & Management: A Business Development Perspective

Abstract

When David Ricardo set the theory for comparative advantages, he imagined that one day the world will function as an economy without borders, which will be beneficial for every country. Today, the world is still far from the realization of that idea. However, Ricardo`s theory has in some way become a model for the creation of a common European market, in which member states of the Union trade freely. From the early beginnings of its creation, the European Union was envisaged as free trade area in which the countries can use their comparative advantages. The idea is that a country would specialize in production of the goods which have relatively lower costs of production, and trade them for goods that are costly to be produced at home. It is the theory of perfect competition, or model of trade without customs and other trade barriers in which the prices will gradually become equal, and the trade between the countries will be based on comparative advantages. That is the model of David Ricardo`s theory, created two centuries ago. Still, practice opposes to the basic values of Ricardo`s theory because there is no model of perfect competition in the EU, because of the numerous custom and non custom restrains, uneven prices in the trade among the EU member states, different consumer tastes in different countries, high transportation costs and others trade barriers. Such trade barriers in some way give explanation to the high difference in the economic growth of the member countries of EU, i.e. slow the convergence process in the Union. If the EU really wants to realize the vision “Europe without borders”, then the trade barriers should be removed as soon as possible. If this comes to light, we can say that Ricardo`s theory is really valid in the modern ways of trading.

• Item Type: MPRA Paper
• Language: English
• Keywords: Ricardo’s theory; foreign trade; comparative advantages; prices equilibrium; free trade.
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E66 - General Outlook and Conditions

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