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What insights about international trade came from Adam Smith and David Ricardo?
On May 16, 2024
In 1776, Adam Smith used the concept of absolute advantage to argue for international specialization and trade. He noted that nations will be better off if each specializes in the production of those products in which it has an absolute advantage and is therefore the most efficient producer. In the early 1800s, David Ricardo extended Smith's idea by demonstrating that it is advantageous for a country to specialize and trade with other countries even if it is more productive in all economic activities than any other country. It only needs a comparative advantage. Ricardo also demonstrated that it is advantageous for a country to specialize and trade with other countries even if it is less productive in all economic activities than other countries. It can also benefit from trade just as long as it has a comparative advantage in at least one product.