Modern Theories
Classical comparative advantage theory was extended in two directions: Ricardian theory and Heckscher-Ohlin-Samuelson theory (HOS theory). In both theories, the comparative advantage concept is formulated for 2 country, 2 commodity case. It can easily be extended to the 2 country, many commodity case or many country, 2 commodity case. But in the case with many countries (more than 3 countries) or many commodities (more than 3 commodities), the notion of comparative advantage loses its facile features and requires totally different formulation. In these general cases, HOS theory totally depends on Arrow-Debreu type general equilibrium theory but gives few information other than general contents. Ricardian theory was formulated by Jones' 1961 paper, but it was limited to the case where there are no traded intermediate goods. In view of growing outsourcing and global procuring, it is necessary to extend the theory to the case with traded intermediate goods. This was done by Shiozawa's 2007 paper. Until now, this is the unique general theory which accounts traded input goods.
Read more about this topic: Comparative Advantage
Famous quotes containing the words modern and/or theories:
“I am not afraid of the priests in the long-run. Scientific method is the white ant which will slowly but surely destroy their fortifications. And the importance of scientific method in modern practical lifealways growing and increasingis the guarantee for the gradual emancipation of the ignorant upper and lower classes, the former of whom especially are the strength of the priests.”
—Thomas Henry Huxley (182595)
“The real trouble about women is that they must always go on trying to adapt themselves to mens theories of women, as they always have done. When a woman is thoroughly herself, she is being what her type of man wants her to be. When a woman is hysterical its because she doesnt quite know what to be, which pattern to follow, which mans picture of woman to live up to.”
—D.H. (David Herbert)