David Ricardo Comparative Advantage Analysis

This paper discusses how later trade theories improve Ricardo’s “Comparative Advantage” in this current era of globalisation. This paperwork is divided into three parts where in the first part; we would put in comparison between Ricardo’s theory against a few notable theories, which would be Heckscher-Ohlin theory, and the New Trade Theory. Our discussion will then move on to the second part where we will analyse Switzerland’s trade partners and its trade composition. In the last part, we would conclude on which trade pattern theories that suits best the trade pattern of Switzerland.

1. INTRODUCTION

David Ricardo in 1817 in his book titled, “On the Principles of Political Economy and Taxation”, had brought to light that the “Absolute Advantage”

In (Krugman 1979) , it argues that trade does not necessary need to be the differences of technology or factor of endowments, but instead trade would be the extension of the market and by allowing the exploitation of scale economies, along with the effects of trade being similar to those of labo force growth and regional agglomeration. This makes it easier to model the monopolistic

It depends for its wealth on foreign trade. The relatively small size of its domestic market - a total population of just over 7,785,800 - is another factor which has encouraged Swiss manufacturers to look abroad: they need foreign markets in order to make investment in research and development worthwhile.

Switzerland imports bulky raw materials and exports high-quality goods. In 2003 the value of one tonne of exported goods was two and a quarter times more than that of the same amount of imports.

Switzerland is landlocked geographically, where it is divided by the Alps, the Swiss Plateau and the Jura. Due to this geographical barrier, most industries and economic activities are focused on the flatlands, the Plateau, where the largest cities are located. Despite the fact that this particular country does not have any large amount of natural resources, it still remains one of the most competitive and robust economies of the world.

The Swiss economy is divided into three sectors, the “Landwirtschaft” (Agriculture), the “Industrie” (Industry), and the “Dienstleistungen” (Services). The “landwirtschaft” would be the primary sector of the Swiss economy, heavily supported by the government, in terms of subsidies and tax