Exploring the Limits of Comparative Advantage

Exploring the Limits of Comparative Advantage. - The paper examines extensions of the Law of Comparative Advantage to several situations that have not been adequately covered before. The basic result is the positive one that a country’s pattern of trade will be negatively correlated with its relative autarky prices. The first extension is to situations of unbalanced trade. The second extension is to an economy with domestic distortions. Finally, the third extension is to a lumpy country model, in which regions of a country may differ in various ways, including differences in factor prices.