The Comparative Advantage Of The Profit Principle And Its Mechanism

The comparative advantage theorem has long been dominating the international economics. Its development can be divided into 2 phases: before 1950s, the comparative cost theory by David Ricardo and the factor endowment theory by Heckscher and Ohlin, both focused in introducing the concept of comparative advantage based on a Ricardian model; after 1950s, quite a few new models and theories were developed without a single same basic structure. But in the second phase, all of these theories can still be categorized into 4 kinds: dynamic comparative advantage theories, such as the new factors theories by Baldwin and Kenen, the life-cycle theory by Vernon and Hirsh, etc; Intra-industry trade theories such as product differentiation model by Stiglitz and Dixit, the strategy trade theory by Spense, Brander and Krugman, and so on; the endogenous trade theory such as technology overflow effect and learning curves theory by Romer and Krugman, the neo-classic trade theory by Tucher and Young, and the like; and the competitive advantage theory by Michael Porter.Within more than 200 years'development, all the concerning theories hold the view that comparative advantage comes from lowering productive costs, no matter by way of high productivities, abundance in endowments or of production with scale economy, etc. It thus can be concluded that one has to reduce the productive costs in order to obtain comparative advantage. Therefore, these theories can be generalized as cost principle of comparative advantage.Neglecting the added values of the goods, the cost principle may be misleading when it's adopted in the less developed countries like China to try to expand the export. For instance, Chinese export ranked the third in the world in 2004, while the state still needs to expand the export to create more job opportunities to alleviate the strain of unemployment. With the fame of cheapness both in quality and price, there seems to be nothing left for Chinese goods to further generate comparative advantage that is indispensable to exports. Instead, problems like inferior structure of export goods, deteriorating export terms and intense trade conflicts still haunt the state. Out of the intuitions of economists, these can be settled by increasing the added values of the export goods, which, ironically, beyond the reach of comparative...