Comparative Advantage Theory: A Critical Research

The theory of comparative advantage is a kind of theory which thinks that international trade is due to the differences of relative cost between countries. It is the basis of contemporary international free trade theory. Now, comparative advantage theory is comprised of three kinds of theories: the absolute advantage theory created by Adam Smith, the comparative advantage theory created by David Richardo and developed by John Stuart Mill, and the factor proportions theory created together by Hechscher and Ohlin. As the comparative advantage theory is more referred to its modern edition, that' s, the factor proportions theory , so we can call the absolute advantage theory created by Adam Smith and the comparative advantage theory created by David Richardo and developed by John Stuart Mill the traditional comparative advantage theory. The absolute advantage theory and Richardo-Mill comparative advantage theory think that the relative cost differences of commodities as well as the comparative advantage is caused by the relative productivity differences between countries. However, the factor proportions theory further thinks that the relative productivity differences as well as the relative cost differences is attributed to the factor proportions differences between countries. According to the factor proportions theory, a country should produce and export the product which is produced with relatively intensive use of those factors that are found abundant and cheap in that country relative to other countries, and import the product which is produced with relatively intensive use of those factors that are found scarce and expensive in that country relative to other countries. Although the vast developing countries have gained some benefits from the international division of labor according to the comparative advantage theory, the historical data suggest that the economic gap between the vast developing countries and the few developed countries is enlarging because of the international division of labor according to the comparative advantage theory. Through the deep research on comparative advantage theory in this paper, the author discovers that the traditional comparative advantage theory as well as the modern comparative advantage theory, that' s the factor proportions theory, has grave deficiency. If we consider the comparative advantage theorem under many countries and the phenomenon of nontransferable production costs, we will find that the international division of labor according to the comparative advantage theory will make the labor-intensive and resource-intensive products of the vast developing countries face nearly complete competition markets or even excessive competition markets while the capital-intensive and technology-intensive products of the few developed countries face incomplete competition markets. So the vast developing countries will get little profits or even suffer losses while the few developed countries get large monopolistic profits from the international division of labor according to the comparative advantage theory. So the vast developing countries will inevitably fall into "comparative advantage trap" . Moreover, if we consider the national economics, we will discover the comparative advantage theory is a tool for developed countries to maintain their prominent positions and strangle their potential opponents. The vast developing countries should upgrade their factor structure and industrial structure if they want to come out of the "comparative advantage trap" , because the economic globalization makes companies can get preliminary resources from all over the world, and the preliminary factor endowment is more and more less important than the other factors such as capital, scale of economy, human capital, technology, and management level which influence productivity. Only under the conditions of more and more healthy institutions and protectionism, can the developing countries upgrade their factor structure and create competition advantage and comparative advantage through the cooperating of the factors of "Diamond System" .