The Ricardian model describes the trade between two or more countries through the theory of comparative advantage in which one country can specialize in producing one good and export it to another. Ricardo provided insight into why countries engage in international trade and how it leads to gains from trade. Indeed, the theory of comparative advantage suggests that a country should specialize in producing goods with relative efficiency and low opportunity cost and then internationally trade these goods to other countries (Krugman & Melitz 2018). The model starts with an assumption that countries often differ in their relative efficiencies in producing different goods. For instance, consider two countries that decide to trade, A and B, with two goods, Y and Z. When country A can produce Y, it is relatively more efficient with low opportunity cost than country B, and country B can produce good Z more efficiently than country A. Therefore, they have comparative advantages in producing goods Y and Z. Both countries have different specializations to maximize their overall production and welfare. According to Krugman, Obstfeld and Melitz (2018), “a country has a comparative advantage in specializing in producing goods if the opportunity cost of producing such goods is lower than producing goods with a high opportunity cost.”

These countries specialize in producing the goods they have a comparative advantage, meaning country A will produce good Y and export to country B, and country B can produce good Z and export to country A. In this case, both countries engage in international trade in exchanging their specialized goods where country A specializes in good Y and country B specializes in good Z. The Ricardian model provides insight into the fact that both countries benefit from international trade even if one country is more efficient in producing both goods by specializing in their comparative advantage sector and trading. Brondino, G. & Dvoskin, A. (2021) argue that “the number of gallons of wine required in exchange for one yard of cloth.” They used the wine and cloth sectors as examples of comparative advantage between the two countries where they can obtain more goods than if they produce domestically—the comparative advantage results in higher overall welfare and gains and trade.

Brondino, G. & Dvoskin, A. (2021) stressed that “under certain conditions, absolute specialization is grounded on comparative advantage that benefits both countries.” But refuting the common fallacies about international trade is a zero-sum game in which one country gains and another loses. The Ricardian model shows that international trade is not a zero-sum game; both countries benefit and increase their welfare through specialization and trade. Sometimes, imports can lead to job loss and economic decline. At the same time, some industries experience job displacement due to imports and overall economic benefits and access to cheaper and diverse goods that lead to increased consumer welfare and job creation from the other sectors. Another fallacy is that trade always incurs a high deficit that is harmful. The trade deficits can result from the country’s stable economic growth and consumer demand. These deficits are not inherently harmful and can be balanced by other economic factors.

The Bible provides the idea of interdependence among nations, which is aligned with the principles of international trade. Also, the Bible encourages cooperation, and trade can be promoted as a way for nations to support each other and increase mutual prosperity. It can encourage nations to work together by exchanging resources and fostering economic ties for the betterment of both. In conclusion, the Ricardian model explains why countries trade and show gains from international trade through the concept of comparative advantage. Indeed, debunking common international trade fallacies and applying the Biblical perspective of interdependence can also help us appreciate the importance of international trade in promoting economic growth, cooperation, and shared prosperity among nations.

References

Krugman, P., Obstfeld, M. & Melitz, M. (2018). International trade: theory and policy (11^th ed.). Pearson.

Brondino, G. & Dvoskin, A. (2021). An assessment of Sumuelson’s Ricardo-Sraffa trade model. International Journal of Political Economy. https://eds-s-ebscohost-com.ezproxy.ccu.edu/eds/pdfviewer/pdfviewer?vid=1&sid=b982db8e-7687-40f0-9f78-c454da8793b3%40redisless