Comparative advantage

This chapter introduces David Ricardo’s theory, sometimes known as the Ricardian Model of comparative advantage. Primarily, we intend to examine its underlying assumptions. We do this to lay the ground for understanding the critical pillars of the model. In essence, the Ricardian Model assumed two countries, producing two goods that are homogeneous across countries and firms within an industry. In this theory, labour is the main factor of production mobile within the country’s industries; however, it cannot move abroad. Further, labour is homogeneous within a country, but this may be different across countries. The implication of homogeneous labour within a country with differences between countries implies that the production technology could be different between the two trading nations. Technological advances have turned the world into a global village. In essence, the borders have virtually flattened. We submit that AI will change the very nature of the Ricardian Theory in the sense that, as it evolves, it flattens the borders and possibly reduces reliance on labour. For instance, one information technology specialist can give guidance on how the application works over the Internet while based somewhere in the world and doctors can perform virtual life-saving operations, and professors can now give virtual classes.