Comparative advantage theories

International trade is the exchange of goods and services through which countries meet their unlimited needs based on the development of the social division of labor.

Basic theories international trade were laid in the late 18th - early 19th centuries. eminent economists Adam Smith and David Ricardo. A. Smith in his book "Research on the nature and causes of the wealth of peoples" (1776) formulated the theory of absolute advantage and, arguing with mercantilists, showed that countries are interested in the free development of international trade, since they can benefit from it regardless of whether are they exporters or importers. D. Ricardo in his work "Principles of Political Economy and Taxation" (1817) proved that the principle of advantage is only a special case general rule, and substantiated the theory of comparative advantage.

When analyzing theories foreign trade there are two things to consider. First, economic resources - material, natural, labor, etc. - are unevenly distributed between countries. Second, the efficient production of different goods requires different technologies or combinations of resources. It is important to emphasize, however, that the economic efficiency with which countries are able to produce different goods can and does change over time. In other words, the advantages, both absolute and comparative, enjoyed by countries are not data once and for all.

The theory of absolute advantage.

The essence of the theory of absolute advantage is as follows: if a country can produce this or that product more and cheaper than other countries, then it has an absolute advantage.

Consider a conventional example: two countries produce two goods (grain and sugar).

Suppose one country has an absolute advantage in grain and another in sugar. These absolute advantages can, on the one hand, be generated by natural factors - special climatic conditions or the presence of huge natural resources. Natural benefits play a special role in agriculture and in the extractive industries. On the other hand, the advantages in the production of various products (primarily in the manufacturing industries) depend on the prevailing working conditions: technologies, qualifications of workers, organization of production, etc.

In conditions when there is no foreign trade, each country can consume only those goods and the amount of them that it produces, and the relative prices of these goods in the market are determined by the national costs of their production.

Internal prices for the same goods in different countries ah are always different as a result of the peculiarities in the supply of factors of production, technologies used, qualifications work force etc.

For trade to be mutually beneficial, the price of any product on the foreign market must be higher than the domestic price of the same product in the exporting country and lower than in the importing country.

The benefit that countries receive from foreign trade will consist in an increase in consumption, which may be due to the specialization of production.

So, according to the theory of absolute advantage, each country should specialize in the production of the product for which it has an exclusive (absolute) advantage.

The Law of Comparative Advantage. In 1817, D. Ricardo proved that international specialization is beneficial for the nation. This was the theory of comparative advantage, or, as it is sometimes called, the theory of comparative cost of production. Let's consider this theory in more detail.

Ricardo took only two countries for simplicity. Let's call them America and Europe. Also, to simplify matters, he took into account only two goods. Let's call them food and clothing. For simplicity, all production costs are measured in labor time.

One should probably agree that trade between America and Europe should be mutually beneficial. It takes fewer work days to produce a food unit in America than in Europe, while a unit of clothing in Europe takes fewer work days than America. It is clear that in this case America, apparently, will specialize in the production of food and, exporting some of it, will receive a ready-made dress exported by Europe in return.

However, Ricardo did not stop there. He showed that comparative advantage depends on the ratio of labor productivity.

Based on the theory of absolute advantage, foreign trade always remains beneficial for both parties. As long as differences remain in the ratios of domestic prices between countries, each country will have a comparative advantage, that is, it will always have a commodity whose production is more profitable at the existing ratio of costs than the production of others. The gain from the sale of products will be greatest when each product is produced by the country in which the opportunity cost is lower.

Comparing situations of absolute and comparative advantage allows you to make important conclusion: in both cases, the gain from trade stems from the fact that cost ratios are different in different countries, i.e. directions of trade are determined by relative costs regardless of whether the country has absolute advantage in the production of any product or not. It follows from this conclusion that a country maximizes its gain from foreign trade if it specializes entirely in the production of a product for which it has a comparative advantage. In reality, such full specialization does not occur, which is explained, in particular, by the fact that replacement costs tend to increase with the growth of production volumes. In the face of increasing substitution costs, the factors determining the direction of trade are the same as with constant (constant) costs. Both countries can benefit from foreign trade if they specialize in the production of those goods where they have a comparative advantage. But with increasing costs, firstly, full specialization is unprofitable and, secondly, as a result of competition between countries marginal cost the substitutions are flattened out.

It follows that as food and dress production increases and specializes, a point will be reached at which the cost ratio in the two countries is leveled.

In this situation, the grounds for deepening specialization and expanding trade - differences in the ratio of costs - exhaust themselves, and further specialization will be economically inexpedient.

Thus, the maximization of gains from foreign trade occurs with partial specialization.

The essence of the theory of comparative advantage is as follows: if each country specializes in those products in the production of which it has the greatest relative efficiency, or relatively lower costs, then trade will be mutually beneficial for both countries from the use of productive factors will increase in both cases.

The principle of comparative advantage, when extended to any number of countries and any number of goods, can have universal implications.

A serious disadvantage of the principle of comparative advantage is its static nature. This theory ignores any price fluctuations and wages, it abstracts from any inflationary and deflationary gaps in the intermediate stages, from all kinds of balance of payments problems. It proceeds from the assumption that if workers leave one industry, then they do not turn into chronically unemployed, but will certainly move to another, more productive industry. Not surprisingly, this abstract theory severely compromised itself during the Great Depression. Some time ago, her prestige began to recover again. V mixed economy based on the theory of neoclassical synthesis, mobilizing modern theories of chronic recession and inflation, the classical theory of comparative advantage is gaining social significance again.

The theory of comparative advantage is a coherent and logical theory. For all its oversimplification, it is very important. A nation that ignores the principle of comparative advantage can pay dearly for this - a decline in living standards and a slowdown in potential economic growth.

Heckscher-Olin's theory of international trade

The theory of comparative advantage leaves aside the key question: what causes differences in costs between countries? Swedish economist E. Heckscher and his student B. Olin tried to answer this question. In their opinion, differences in costs between countries are mainly due to the fact that the relative endowments of countries with factors of production are different.

According to the Heckscher-Olin theory, countries will strive to export excess factors and import scarce factors of production, thereby compensating for the relatively low provision of countries with factors of production on the scale of the world economy.

It must be emphasized that we are not talking about the number of factors of production available to countries, but about the relative provision of them (for example, about the amount of land suitable for cultivation per worker). If in a given country some factor of production is relatively greater than in other countries, then the price for it will be relatively lower. Consequently, the relative price of the product, in the production of which this cheap factor is used to a greater extent than others, will be lower ”than in other countries. Thus, comparative advantages arise that determine the direction of foreign trade.

In recent decades, significant shifts have taken place in the directions and structure of world trade, which do not always lend themselves to an exhaustive explanation within the framework of classical trade theories. This prompts how to further development already existing theories, and to the development of alternative theoretical concepts. Among such qualitative shifts, one should, first of all, take revenge on the transformation of technological progress into a dominant factor in world trade, the ever-increasing share in trade of counter deliveries of similar industrial goods produced in countries with approximately the same security, and a sharp increase in the share of world trade turnover accounted for by intra-firm trade.

Product life cycle theory

In the mid-1960s, the American economist R. Vernoy put forward the theory life cycle product, in which he tried to explain the development of world trade in finished goods on the basis of the stages of their life, i.e. the period of time during which the product is viable in the market and meets the seller's objectives.

A position in an industry is determined by how a firm achieves its profitability (competitive advantage). The strength of positions in the competition is ensured either by a lower level of costs than those of competitors, or by differentiation of the manufactured product (improvement of quality, creation of products with new consumer properties, expanding after-sales service opportunities, etc.).

Success in the global market requires the optimal combination of the right competitive strategy firms with competitive advantages of the country. M. Porter identifies four determinants of a country's competitive advantage. First, the availability of production factors, and in modern conditions the main role is played by the so-called developed specialized factors (scientific and technical knowledge, highly qualified labor force, infrastructure, etc.), purposefully created by the country. Secondly, the parameters of domestic demand for the products of a given industry, which, depending on its volume and structure, allows the use of economies of scale, stimulates innovation and product quality improvement, and pushes firms to enter the external market. Thirdly, the presence in the country of competitive supplier industries (which provides quick access to the required resources) and related industries producing complementary products (which makes it possible to interact in the field of technology, marketing, service, exchange information, etc.) - So In the words of M. Porter, clusters of national competitive industries are being formed. Finally, fourthly, the competitiveness of the industry depends on the national characteristics of the strategy, structure and rivalry of firms, i.e. therefore, what are the conditions in the country that determine the features of the creation and management of firms, and what is the nature of competition in the domestic market.

M. Porter emphasizes that countries have the greatest chances of success in those industries or their segments where all four determinants of competitive advantage (the so-called national diamond) are most favorable. Moreover, the national rhombus is a system whose components are mutually reinforced, and each determinant affects all the others. An important role in this process is played by the state, which, pursuing a targeted economic policy, affects the parameters of factors of production and domestic demand, the conditions for the development of supplying industries and related industries, the structure of firms and the nature of competition in the domestic market.

Thus, according to Porter's theory, competition, including in the global market, is a dynamic, developing process, which is based on innovation and constant updates of technology. So to explain competitive advantages on the world market, it is necessary "to find out how firms and countries improve the quality of factors, increase the efficiency of their application and create new ones."

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5.4 A Brief Introduction to International Trade Theory

Modern world economy is a system of economic relations between different countries and regions of the world, based on international trade and the international division of labor. International trade develops because it benefits the countries that participate in it. In this regard, one of the main questions that the theory of international trade must answer is what underlies this gain from foreign trade, or, in other words, how the directions of foreign trade flows are determined.

The basic principles of the international division of labor and international trade were formulated two centuries ago by the English economists Adam Smith and David Ricardo. A. Smith in his book "Research on the nature and causes of the wealth of peoples" (1776) formulated the theory absolute advantage and showed that countries are interested in the free development of international trade, since they can benefit from it, regardless of whether they are exporters or importers.

Recall that an absolute advantage is the ability to produce more units of a given product with the same resource consumption, or (which is the same thing), to produce a unit of a product with less resources.

D. Ricardo in his work "Principles of Political Economy and Taxation" (1817) proved that the principle of absolute advantage is only a special case of the general rule, and substantiated the theory comparative advantage... Recall that comparative advantage is the ability to produce a product or service with relatively lower opportunity costs. Recall that opportunity costs are missed production opportunities, expressed in the refusal to produce another product in the production of a given one.

In the two centuries since the days of Smith and Ricardo, the theory of international trade has undergone significant development, but the basic principles remained largely unshakable (at least until the 2008 Nobel laureate Paul Krugman proposed his theory of international trade). These principles can be summed up in one sentence: the international division of labor and trade are based on comparative advantage.

The country produces the product in which it has a comparative advantage. A country that specializes in the production of a commodity becomes its exporter (that is, a seller in international trade). At the same time, the country buys goods from other countries, being their importer.

The ratio of exports and imports is reflected in the trade balance. The trade balance is the difference between exports and imports.

trade balance = Ex - Im

If the cost of imports exceeds the income from exports (Im> Ex), then this corresponds to the state of the trade deficit. The country buys more foreign goods than it sells domestic goods to foreigners.
In this case, the country needs more funds to settle with foreign counterparties for imports than it receives from foreign counterparties for its exports. In other words, economists say, the trade deficit must be financed.

Financing the trade deficit, i.e. the difference between import costs and export earnings can be carried out:

• either through foreign (external) loans from other countries or from international financial institutions such as the International Monetary Fund, World Bank, etc .;
• either through the sale of financial assets (private and public) to foreigners valuable papers) and receipts to the country Money on account of their payment.

And in fact, and in another case in the country (on financial market) there is an inflow of funds from the foreign sector, which is called capital inflow, and this makes it possible to finance the trade deficit.
That is, the trade deficit corresponds to the capital inflow into the country.

If the income from exports exceeds the cost of imports (Ex> Im), which means a surplus (surplus) of the trade balance, then capital outflow occurs from the country, since in this case foreigners sell their financial assets and receive the funds necessary to pay for the export.
The trade surplus corresponds to the capital outflow from the country.

Economic theory shows that international trade is a means by which countries, by developing specialization, can increase the productivity of available resources and thus increase the volume of goods and services produced and improve the level of well-being. We have already considered a simple trade model, where, in the course of trade, two countries received an expansion of their consumer opportunities, which can be shown as the movement of the CPV of each of the economies to the right and up.

Trade enables its participants to realize their comparative advantage. Stephen Landsburg's The Economist on the Couch provides an example that the United States has two ways of making cars: Detroit and Iowa. One of them involves the production of cars in factories in Detroit, the other involves the cultivation of wheat in the fields in Iowa. The second method implies that the grown wheat will be exchanged for cars in the course of international trade (for example, for Japanese Toyota). Which of these methods is more preferable? It all depends on the opportunity cost of each method. It may well be that having a comparative advantage in wheat cultivation (i.e. lower opportunity costs), american economy discovers that it is profitable for her to completely abandon the production of cars in Detroit in favor of making cars in Iowa (that is, in favor of growing wheat, its further export to Japan, and the import of Japanese cars).

5.4.1. Foreign trade policy

The modern world economy functions in the context of globalization, which represents a new level and type of internationalization of production. Countries and regions of the world are closely linked not only by large-scale commodity and financial flows, but also by international production and business, information technology, streams of scientific knowledge, close cultural and other contacts. The interdependence of individual countries and regions in the world economy has sharply increased. For example, American corporations are also dependent on cheap Chinese labor, as are Chinese consumers on quality American technology goods.

Despite the fact that free trade leads to an increase in the economic well-being of all countries, both exporters and importers, in practice, international trade has practically never developed really freely without state intervention. The history of international trade is both a history of development and improvement state regulation international trade. In the course of the development of foreign trade relations, the economic interests of various social groups and strata of the population, and the state inevitably becomes involved in this conflict of interests. The state is an active participant in international trade relations, conducting foreign trade policy(regulation of international trade). Foreign trade policy is one of the directions of state regulation of the economy.

The main instruments of foreign trade policy:

1. Import duty is a state tax levied on imported (imported) goods.
2. Export duty is a government tax on exported (exported) goods.
3. Quotas (quota establishment) is a limitation in quantity or value terms of the volume of products allowed to be imported into the country (import quota) or exported from the country (export quota) for a certain period.
4. Licensing - regulation of foreign trade through permits issued government bodies for the export or import of goods in fixed quantities for a certain period of time.
5. Voluntary export restriction is a quantitative restriction on exports based on the obligation of one of the trading partners to restrict the volume of exports.
6. Export subsidy is a financial incentive provided by the state to an exporter to expand the export of goods abroad.
7. Dumping is the sale of a product in the foreign market at a price below the normal level, that is, below the price of a similar product in the domestic market of the exporting country.
8. International cartel - an agreement between exporters of a product from different countries, aimed at ensuring control over production volumes and establishing favorable prices.
9. An embargo is a prohibition by a state of the import into or export from any country of goods or financial assets.

Foreign trade policy measures aimed at protecting the domestic market from foreign competition through various trade policy instruments are called policies protectionism.

Despite the fact that modern economic theory connects protectionism (like any regulation of the economy) with the loss of welfare for society protectionism is used everywhere. The logic of protectionism is to create favorable conditions for the development of domestic sectors of the economy, protecting them from competition with foreign goods.

Why is protectionism so bad? The obvious answer is that protectionism prevents economies from realizing their comparative advantages. For example, if Russia has a comparative advantage in energy production, and France in food production, then in international trade, according to the theory comparative advantages, Russia should specialize in energy production, and France in food production. With full specialization, Russia will only focus on oil production and will import food from France for its own consumption. This state of affairs will not suit you in the first place Russian manufacturers food products, which over time will find more and more competition from imported French products. Under these conditions, domestic producers of Russian products will take actions aimed at lobbying their interests. In other words, using political support, domestic producers will try to create conditions for themselves that will restrict competition from imports. This is precisely what the policy of protectionism is about.

Protectionism hurts competition because it distorts the incentives of companies. In order to win over a consumer in a competitive economy, a company must win the competition, that is, offer a product best quality or at a lower price. In the case of protectionism, when domestic products are protected from foreign competition by import duties or other barriers, domestic producers have no incentive to improve product quality, since they are protected from competition with foreign producers. Instead of developing new products and constantly improving quality, these companies are busy trying to lobby for better protectionist terms. Over time, the quality of the products of these companies begins to lag significantly behind the quality of similar foreign products. As a result, consumers receive a product of inferior quality than they could have received in the absence of protectionism.

Russia is a good example with its strong oil industry and a weak auto industry. Having undoubted comparative advantages in oil production over many countries (the cost of oil production in Russia is lower than in the United States and European countries), Russia is realizing its comparative advantages. At the same time, it is also clear that Russia does not have a comparative advantage in car production. If it were not for the numerous trade barriers to foreign cars and the numerous subsidies to the domestic auto industry, then Russian consumers could have long been able to buy better quality foreign cars cheaper than the Russian Lada. Maybe it would be more profitable for Russia not to produce cars at all and focus only on oil production? Comparative Advantage Theory claims that this is the case. Why, then, does Russia produce cars and continues to subsidize and protect the domestic manufacturer with import duties? Most likely, the answer does not lie in the economic plane. Perhaps Russia does not want to depend on imports of foreign cars. Perhaps Russia does not want to lay off hundreds of thousands of workers employed in the domestic auto industry. Perhaps there are other motives as well. Anyway, state of the art the domestic auto industry is a clear example of the fact that protectionist policies, by distorting the incentives of firms in protected industries, in long term does not lead to the best consequences for consumers and society.

Arguments for protectionism

• Protecting young industries.
• Protecting politically sensitive industries
• Maintaining employment.

Arguments against protectionism

• A loss economic efficiency(or, as economists say, net social loss)
• Distortion of incentives for companies in protected industries.
• Retaliatory protectionist measures from other economies.

Modern trade relations are the intersection of many opposing trade interests. Each country is involved in a variety of trade and financial relationships with other economies. When pursuing protectionist policies, each country should remember that the introduction of protective measures is accompanied by retaliatory measures from trading partners. For example, under pressure from the American steel lobby, the US government imposed restrictive tariffs of 8 to 30% on imports in March 2002. different types steel and steel products produced in a number of countries in Europe, Asia and Latin America... Following this decision, a number of countries decided to introduce retaliatory restrictive tariffs on a number of American goods. It was heading towards a trade war. As a result, the Bush administration decided to abolish import duties, fearing the loss of international markets for a range of American products.

In a more negative scenario, events developed in the post-Great Depression times of the 1930s. After an unprecedented drop in demand in almost all developed economies of the world, the countries of Western Europe decided to resort to strict protectionist policies to protect their domestic industries from foreign (primarily American) imports. As a result of the widespread use of trade restrictions, the volume of world trade decreased by 3 times from 1929 to 1933, and the recovery from the depression by a number of countries stretched for ten or more years. Countries have responded to restrictions from trading partners by introducing new trade restrictions. Countries, even realizing that total trade barriers lead to a deterioration in their welfare, could not refuse to use them. In an environment where trade barriers are used everywhere, if one of the participants in the trade wants to abandon them, and all others continue to apply, this will lead to the total impoverishment of this participant. In other words, if there is a risk that other participants will continue to apply trade barriers, no one will be the first to drop them. At the time, trading partners lacked coordination. Under these conditions, in 1947, the General Agreement on Tariffs and Trade (GATT) was formed, which in 1995 was transformed into the World trade organization(WTO). The WTO is responsible for the development and implementation of new trade agreements, and also monitors the members' compliance with all agreements signed by most countries in the world. That is, the WTO acts as the organizer of world trade relations, which the world lacked so much until 1947. Main function The WTO is to monitor how participants in trade relations comply with reached agreements on trade liberalization.

The most popular trade model is the two-goods trade between two countries. This model will be discussed in the chapter "Market Equilibrium", after we get acquainted with economic terms supply and demand.

Foreign trade theories

Foreign trade theories are designed to provide answers to the following questions.

• What is the basis of MRI?
• What determines the effectiveness of international specialization for individual countries?
• What guides firms in their behavior regarding their inclusion in international exchange?

Historically, the first theory of foreign trade is mercantilism (XVI-XVII centuries). This theory was based on the fact that the wealth of a nation is determined by the volume of gold. Therefore, the task of nation states is to sell more and buy less, thus facilitating the movement of gold, which served as world money, from one country to another. Mercantilists viewed international trade as a zero-sum game, where a country's gain inevitably meant a loss for its trading partner. They emphasized the need to implement foreign economic policy that would contribute to the achievement of a positive trade balance.

Classical theories foreign trade

A. Smith's theory of absolute advantages proceeds from the fact that the welfare of a nation depends on the degree of deepening of the division of labor, including international.

A. Smith came to the conclusion that each country should specialize in the production and export of goods, in the manufacture of which it has absolute advantages, that is, a country in which the production of a certain economic good is cheaper should not only focus on meeting the needs for this good own residents, but also to ensure the export of this good to other countries in which its production is more expensive. The selection of industries and types of production in which the country will specialize is made not by the government, but by the invisible hand of the market. Each nation benefits from international trade, since it necessarily has a certain absolute advantage in the production of certain economic benefits.

Mercantilist theory developed and implemented in XVI-XVIII centuries, is the first of theories of international trade.

Supporters of this theory believed that the country should restrict imports and try to produce everything itself, as well as encourage exports in every possible way. finished products, seeking an inflow of currency (gold), that is, only exports were considered economically justified. As a result of the positive trade balance, the flow of gold into the country increased the opportunities for capital accumulation and thus contributed to economic growth, employment and prosperity of the country.

Mercantilists did not take into account the benefits that countries receive in the course of the international division of labor from the import of foreign goods and services.

According to the classical theory of international trade emphasizes that “the exchange is favorable for each country; every country finds an absolute advantage in it ", the necessity and importance of foreign trade is proved.

For the first time, the policy of free trading was defined A. Smith.

D. Ricardo developed the ideas of A. Smith and argued that it is in the interests of each country to specialize in production in which the relative benefit is greatest, where it has the greatest advantage or the least weakness.

Ricardo's reasoning found its expression in comparative advantage theory(comparative production costs). D. Ricardo proved that international exchange is possible and desirable in the interests of all countries.

J.S. Mill showed that, according to the law of supply and demand, the exchange price is set at such a level that the aggregate export of each country makes it possible to cover its aggregate imports.

According to Heckscher-Ohlin theories countries will always seek to covertly export surplus factors of production and import scarce factors of production. That is, all countries tend to export goods that require significant inputs of production factors, which they have in relative abundance. As a result the Leontief paradox.

The paradox is that, using the Heckscher-Ohlin theorem, Leontiev showed that the American economy in the post-war period specialized in those types of production that required relatively more labor than capital.

Comparative advantage theory was developed by taking into account the following circumstances affecting international specialization:

1. heterogeneity of factors of production, primarily the labor force, differing in the level of qualifications;
2. the role of natural resources that can be used in production only in conjunction with large amounts of capital (for example, in the extractive industries);
3. influence on the international specialization of foreign trade policies of states.

The state can restrict imports and stimulate production within the country and the export of products of those industries where they are intensively used relatively scarce factors of production.