Beyond Ricardian Model: An Optimal Commodity Distribution Based on Absolute Advantage for Multi-Country Multi-Commodity

Eun Ju Lee, Yeongseop Rhee, Sang-Un Lee

Abstract


Ricardo’s comparative advantage model asserts that international trade will make every single participant
country better off if they traded goods in which they have comparative advantage. Tian (2008) has generalized
and expanded this Ricardo's 2-country, 2-commodity comparative advantage into a multi-country,
multi-commodity model. His methodology, however, occasionally fails to achieve optimal commodity
distribution or to facilitate international trade even if it succeeds in optimal distribution, for it results in a high
degree of difference in countries’ commodity prices. This paper proposes an algorithm that selects countries’
comparatively advantageous goods for multi-country, multi-commodity model based on their absolute advantage.
The proposed algorithm simply selects a commodity with the maximum absolute advantage - the minimum price
- from each country and reassigns commodities of over-assigned countries to under-assigned countries. This
absolute advantage model (AAA) is found to be much simpler than Tian’s comparative advantage method and to
yield superior results.


Full Text: PDF DOI: 10.5539/ijbm.v8n14p110

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International Journal of Business and Management   ISSN 1833-3850 (Print)   ISSN 1833-8119 (Online)

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