Premium
An Inframarginal Analysis of the Ricardian Model
Author(s) -
Cheng Wenli,
Sachs Jeffrey,
Yang Xiaokai
Publication year - 2000
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00216
Subject(s) - economics , comparative statics , comparative advantage , tariff , general equilibrium theory , partial equilibrium , negotiation , terms of trade , division of labour , international economics , microeconomics , international trade , market economy , political science , law
This paper shows that a 2 × 2 Ricardian model has a unique general equilibrium, and the comparative statics of the equilibrium involve discontinuous jumps. If partial division of labor occurs in equilibrium, the country producing both goods would impose a tariff, whereas the country producing a single good would prefer unilateral free trade. If complete division of labor occurs in equilibrium, both countries would negotiate to achieve free trade. In a model with three countries, the country which does not have a comparative advantage relative to the other two countries, and/or which has low transaction efficiency, may be excluded from trade.