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Comparative Advantage Theory Of International Trade

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In the field of international trade, comparative advantage theory has been the dominant theory to explain the causes of international trade and trade interests. It is the result of several generations of continuous development and improvement. From the initial Smith 's "Absolute Cost Theory" to Ricardian "Comparative Cost Theory". Although many scholars developed and completed the theory after them, their studies and discussions focused on the terms of trade. Instead of saying these kinds of theories were modificatory development of comparative advantage theory, they were explanatory supplement.
Since the 1960s, there have been many new trends in the international trade. The traditional comparative advantage theory cannot be explained adequately …show more content…

Factor abundance degree is also called factor endowments which are relative abundance relationship among the a variety of owned available factors of production in the country. There are two ways of measuring. One is the ratio of the physical quantities of the various factors. The other is the relative price of the elements. Factor density is the ratio of the production process of different input factors. Under the assumption between the two elements of capital and labor, factor density can be measured by the capital labor ratio used in production. In the light of the different factors density in the production process, the product can be divided into labor-intensive products and capital-intensive products. At present, cheap labor is the most comparative advantage of resources for China. According to the modern theory of comparative advantage, China should mainly produce and export labor intensive products, while imports of capital intensive products. But this just comparative advantage theory reflected in the static level. If China wants to develop the foreign trade better in the competition getting more and more intense international market, it must give full play to the dynamic comparative advantage based on complying with the static comparative advantage theory. Actively to adjust the industrial structure and export commodity structure. Finally playing a competitive advantage …show more content…

The level depends on two factors. First, the relative relationship between the number and growth in both foreign demand for domestic goods and increase and the domestic demand for foreign goods. Second, the amount of capital the country can be saved from the service in domestic consumption demand. Thus, to enjoy the most favorable trade conditions in international trade is precisely those countries which have the greatest demand for their goods from foreign countries, and their own demand for foreign goods smallest

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