Ricardo's Theory of Comparative Advantage: Old Idea, New Evidence

11 Pages Posted: 25 May 2012  

Arnaud Costinot

University of California, San Diego (UCSD) - Department of Economics; Massachusetts Institute of Technology (MIT) - Department of Economics

Dave Donaldson

Stanford University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Bureau for Research and Economic Analysis of Development (BREAD)

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Date Written: April 2012

Abstract

When asked to name one proposition in the social sciences that is both true and non-trivial, Paul Samuelson famously replied: `Ricardo's theory of comparative advantage'. Truth, however, in Samuelson's reply refers to the fact that Ricardo's theory of comparative advantage is mathematically correct, not that it is empirically valid. The goal of this paper is to assess the empirical performance of Ricardo's ideas. We use novel agricultural data that describe the productivity in 17 crops of 1.6 million parcels of land in 55 countries around the world. Crucially, this dataset contains information about the productivity of each parcel of land in all crops, not just those that are currently being grown. This direct information about relative productivity differences across economic activities allows us to compute, for the first time, the output predicted by Ricardo's theory of comparative advantage. Despite all of the real-world considerations from which this theory abstracts, we find that Ricardo's theory of comparative advantage has significant explanatory power in the data, at least within the scope of our analysis.

Keywords: comparative advantage, Ricardian theory

JEL Classification: F10, F11

Suggested Citation

Costinot, Arnaud and Donaldson, Dave, Ricardo's Theory of Comparative Advantage: Old Idea, New Evidence (April 2012). CEPR Discussion Paper No. DP8930. Available at SSRN: https://ssrn.com/abstract=2066303

Arnaud Costinot (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-391
Cambridge, MA 02142
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Dave Donaldson

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Bureau for Research and Economic Analysis of Development (BREAD) ( email )

Duke University
Durham, NC 90097
United States

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