The Smith's Theory Of Comparative Advantages: Challenges

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Comparative Advantage: Challenges
Khalid Alshwaish
Saudi Electronic University Comparative Advantage: Challenges
The Smith’s original theory of comparative advantage is commonly used to describe international trade and support the need for free trade policies. The theory uses the concept comparative advantages in production to show the logic of specialization in production and use of resources. But despite the benefits associated with comparative advantages, free trade policies are usually questioned, and nations try to avoid full specialization in their production. Palley’s observation on the modern international market contrasts Smith’s original theory, by showing that it does not consider new international market realities.

Smith’s original theory on international trade follows the concept of division of labor at the local level and supports free international trade to maximize production and benefits for all. His view is that division of labor is related to production, where an advanced division of labor is directly related to increased and cost-effective production (Schumacher, 2012). As a result, it is possible to produce …show more content…

The observation is that though there are gains in international trade, countries can suffer from further specialization as their gains from globalization decline. Palley’s view contrasts Smith’s original theory by showing the challenges of continued globalization and international free trade on individual nations. The original comparative advantage theory fails to capture the new realities created by globalization in international trade. The technology mobility from one nation to another negates the need for specialization and production of surplus because markets can satisfy their needs. Additionally, the transfer of technology is influenced by

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