Critically discuss the Ricardian theory of Comparative Advantage. How is it different from Adam Smith’s theory of Absolute Advantage

The Ricardian theory of Comparative Advantage, developed by economist David Ricardo, posits that countries should specialize in producing goods and services in which they have a lower opportunity cost relative to other nations.

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This specialization, according to Ricardo, leads to increased overall efficiency and benefits all trading partners. Comparative Advantage focuses on relative efficiency differences rather than absolute efficiency, allowing nations to gain from trade even if one is less efficient in the production of all goods.

In contrast, Adam Smith’s theory of Absolute Advantage, predating Ricardo’s work, argues that a country should specialize in producing goods it can produce more efficiently than any other nation. Smith emphasized absolute productivity differences as the basis for specialization and trade. Unlike Comparative Advantage, Absolute Advantage suggests that a country should produce only those goods where it has an absolute efficiency edge.

The key distinction lies in the basis of specialization: Comparative Advantage considers relative opportunity costs, while Absolute Advantage focuses on absolute productivity differences. Comparative Advantage provides a more nuanced view, allowing nations to benefit from trade even if one is less efficient across the board, fostering a more inclusive global trade environment.