Comparative Advantage Theory: Schumacher vs. Palley - Economics

This essay critically examines the comparative advantage theory in economics, contrasting the viewpoints of Schumacher (2012) and Palley (2008). The introduction establishes the importance of comparative advantage in international trade. The paper explores the similarities between the two ec...Read More

Running head: CRITICAL THINKNG ECONOMICS 1
Critical Thinking, economics
Student by (Name)
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CRITICAL THINKING ECONOMICS 2
Introduction
The comparative advantage theory is a preferred standpoint and is currently a standout
amongst the most imperative ideas in connection to universal exchange. The comparative
advantage theory has been acknowledged by different financial researchers and has been
discussed by various scholars in different articles. The theory of comparative advantage has over
the time become more important as more economies in the globe becomes increasingly
intertwined. According various studies almost every country in world depends on another
country to supply them with commodities which they do not have resources to produce. The
content of this paper therefore discusses similarities between the comparative advantage theory
as discussed originally by Schumacher (2012) and as discussed by Palley (2008) in their
journals. The content of this paper deeply analyses to what contrast does Palley's (2008)
observation regarding the modern view of comparative advantage to that of Schumacher (2012).
Similarities and contrasts between the comparative advantages as discussed in the
journals by Schumacher (2012) and Palley (2008)
Similarities
As revealed by various studies, economists all over the world favor the theory of free
international trade nearly in an a unanimous way. Polls as well as scholarly studies relate to
economics indicate that there is an overwhelming academic support for unrestricted trade with
fundamental discourse in view comparative advantage theory. Along these lines the first relative
theory as talked about by Schumacher (2012) to some level in content agrees with the advanced
hypothesis of near as discussed by Palley in his (2008) article. In both the articles, the writers
concurs with the global implication of free international trade. The two articles according my
understanding are in assertion that all nations are improved by unhindered commerce. In both the
articles, the journalists have conclusion that work and capital outcomes into a similar preferred

CRITICAL THINKING ECONOMICS 3
standpoint (Day and Robin Wensley, 2008). The two hypotheses correspondingly concur that a
nation with more capital will have an upper hand contrasted with another along these lines the
nation with low capital and work to deliver a given item will fare to the next country while the
other with low generation assets will import however in every way the two countries pick up
from each other.
The theory of comparative advantage as discussed by both Schumacher (2012) and
Palley (2008) in their articles is similar as both writers have based their idea on the similar
assumptions which most of the current academics do not fully concur. The two authors have
their opinion on comparative advantage based on an assumption that labor and capital do not
move among nations. However, with critical analysis of the two theories in relation to these
assumptions suffer the same setbacks. They argue that the there is no imbalance between various
resources and that all resources are fully employed in an international trade (Luo, 2010).
Differences
On the other hand the modern theory of comparative by Palley (2008) is different to the
original theory by Schumacher (2012) in terms of observation. The modern theory includes more
assumptions and explains that the comparative advantage does not only rice as result of labor and
capital but from other resources (Day & Robin Wensley, 2008). Even though it concurs with the
original theory, it is true that apart from only capital and labor a nation can have comparative
advantage to another in relation to other resources. The modern theory of comparative as
discussed by Palley (2008) tends to rely more on the free international theory.
The study by Palley (2008) also explains that the comparative advantage can also be
brought about by the price but not the cost as originally stated by Schumacher (2012) in his
article. Similarly the study also based on the neoclassical and classical theories which came to

CRITICAL THINKING ECONOMICS 4
rise as a result of comparative development (Day & Robin Wensley, 2008). The modern theory
explains that the inability of the labor and capital to move from one nation to another can be also
be balanced using other resources like technology among others (Hall, 2013).
Contrary to the original view by Schumacher (2012) in his article, the observation made
by Palley in his work suggests that the theory of comparative advantage can be misleading
nations if not simultaneously applied with various new models. According to Schumacher (2012)
the theory of comparative advantage is complete and can be applied by various nations.
Schumacher in his writing states that trades between countries should be balanced but the current
study disagrees by stating that free trade is beneficial to nations regardless of the comparative
advantage.
While the original theory fully focusses only on two factors of production, the modern
theory indicates that a nation can benefit from a free trade through utilization of various available
resources which the nation can use to its advantage and this is illustrated through the application
of various neoclassical tools (Luo, 2010). The original theory does not fully explain the sources
of the comparative advantage of a nation over the other compared to the modern theory which
gives light on various reasons for the comparative advantage through application of various
models.
Conclusion
As discussed about over, the comparative advantage as examined by Schumacher (2012)
does not contrast much with the advanced perception of similar favorable position hypothesis as
outlined in Palley (2008). However, the discussion by Palley (2008) indicates more clear and
advancement assumptions as compared to the original theory by Schumacher (2012).

CRITICAL THINKING ECONOMICS 5
References
Day, George S. & Robin Wensley (2008). Assessing Advantage: A Framework for Diagnosing
Competitive Superiority, Journal of Marketing 52 (April).
Hall, Richard (2013). A Framework Linking Intangible Resources and Capabilities to
Sustainable
Competitive Advantage, Strategic Management Journal, vol. 14 (8).
Luo, Yadong (2010). Dynamic Capabilities in International Expansion, Journal of World
Business, Vol. 35 (4).
Reinhard Schumache (2012) Deconstructing the Theory of Comparative Advantage
wer.worldeconomicsassociation.org/files/WEA-WER2-Schumacher.\
Thomas I. Palley (2008) Rethinking Comparative Advantage and Trade Policy
https://www.jstor.org/stable/25511294