The principle of comparative advantage is the belief that
the economic interest of a nation is best served by producing and exporting those
commodities which it can produce at relatively lower cost, and it should import other
commodities which it can produce at relatively higher cost. This belief or
recommendation is based on the fact that given a set of relative advantages and
disadvantages possessed by different countries, the practice of free trade will result
in maximization of economic benefit of each and every
country.
However, this logic is misleading, because it
holds true only when we assume that the relative advantages and disadvantages of the
different countries are unchanging. But this assumption does not hold true in reality.
Reality is that the developed nations have become developed by improving their economic
capabilities in the past. They were able to do so under condition where they faced
limited competition.
For the developing countries to
develop by improving upon their present capabilities and improving relative advantage
over other countries, they need to protect domestic production from free trade. Thus,
some selective restriction on free trade is helpful and even necessary for improving the
economic condition of the developing countries. This is why, it is justified for the
developing nations to be skeptical about the principle of comparative
advantage.
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