Unequal Exchange and the Gains from Trade

Abstract

The classical model of trade according to comparative advantage is based on several assumptions which must be relaxed when applying the theorem in practice. Aside from the problem of having to generalise from a two-country two-commodity framework, comparative advantage rests on the presumption of identical production functions, full employment, and factors of production being internationally immobile. A further requirement is that perfect competition exists within and between countries. This latter stipulation appears especially inappropriate in describing relations between most developed and developing nations.