International Economics: Trade and Comparative Advantage Analysis

This report delves into the core concepts of international economics, with a particular focus on the theory of comparative advantage and its relevance in the context of modern digital trade. It begins with an introduction to the field, highlighting the contributions of economists like Alan V. Deardorff and the foundational work of Ricardo. The report then poses key research questions examining how comparative advantage can enhance terms of trade, the effects of digital trade on this advantage, and the application of these principles to digitally produced goods and services, including the role of online social media. The study formulates null and alternative hypotheses to investigate these questions. The methodology involves an analysis of how factors like cloud computing, cryptocurrencies, and digitization impact economic growth and trade efficiency. It explores how these technologies facilitate cost minimization, resource distribution, and improved supply chain management. The report also acknowledges the challenges to the Ricardian model, such as the absence of perfect competition and the role of infrastructure. Finally, the report concludes by emphasizing the continued relevance of comparative advantage in international trade, even as economies become increasingly digitized, and it suggests that through resource distribution and cost minimization, economies can maximize their gains from trade.

Running head: International Economics
International Economics
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Table of Contents
Introduction......................................................................................................................................2
Research question............................................................................................................................3
Hypothesis.......................................................................................................................................3
Data and methods............................................................................................................................3
Conclusion.......................................................................................................................................6
Reference list...................................................................................................................................7

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Introduction
Alan V. Deardorff is the professor of international economics in the University of
Michigan. After receiving his PHD from Cornell University in 1971 and has been serving the
university as faculty since 1970. He served as Chair of the Department of Economics from 1991
to 1995 and as Associate Dean of the Gerald R. Ford School of Public Policy from 2007 to 2015.
Ricardo introduced the law of comparative advantages back in 1817; the main agenda of the
theory was that difference in technology is one of the factors that indulge international trade. One
of the main assumptions was that would two country producing two goods will participate in
trend. This assumption is no longer valid in modern trade. Nowadays goods are being produced
in one country and are being transported to another country. The main aim of this study is to
study regarding the cost minimization policy that are being taken by the government so that they
can bring the involvement of trade and commerce that will maximize the gains from trade for the
countries participating in the trade. Now taking the concept of the comparative advantage, the
export will be done by the country if the relative comparative advantage is lower in that country
than the trading partners are.
For the past 200 years, the trade is being done smoothly and transport facility is one of
the important properties for the development of comparative advantages. Only trading in service
will be one of the factors that have challenged the comparative advantages. At first the
economists denied the concept of trading in service as in service the point of manufacturing and
point of consumption is the same. The study will be aiming to increase the research hypothesis
and research questions that will be showing an inclination towards the prospective of the study
so that study will be able to highlight the importance of better economy and will be highlighting

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the importance of business improvement. The study will be significant in the sense that through
the development of resource the terms of trade will be determined.
 Through the improvement in the economy the comparative advantage is improving the
terms of trade
 Comparative advantage will bring in more benefits from international trade through the
development of high quality of goods
 Comparative advantage will be having better involvement of terms of trade so that they
will be gaining position in the economy
 Digital trade is going to incorporate the development of resources online
 Digital trade will definitely allow the incorporation of better business
Digital trade is actually highlighting the incorporation of better development of terms of trade
that will be indulging foreign aid in improving the trade and commerce. Through the utilization
of resource the economy will be portraying digitization.

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Research question
How comparative advantage of the economy will increase the terms of trade for the economy?
Is it possible for the economy to increase the terms of trade through digital trade and commerce?
Is it possible to apply the law of comparative advantage over digitally produced goods and
services?
How the online social media is helping in the development of comparative advantages in the
economy?
Hypothesis
In order to identify the validity of the study, the determination of null and alternative
hypothesis is necessary. It will be crucial in the sense that through the innovation in the
economical variables will be mainly looking for the development of better results that will be
helping in the improvement in the economical factors that will be helping the growth of trade and
commerce. Both null and alternative hypothesis will be aiming to increase the development of
resources.
H0: Social media is helping in the development of digital marketing
H1: Social media is not helping in the development of digital marketing
The second set of null and alternative hypothesis is
H00: Digital goods services and trade is improving the terms of trade
H01: It is not improving terms of trade

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Data and methods
Improvement in the cloud computing is helping in the development of better physical and
sociological balances within any economy. The emergences of the crypto currency in the form of
Bit coin are actually helping the development of the economic growth and investment has
improved. From the increased level of digitization, most of the developed nations will be looking
to increase the growth. Using modern digitization, nations will automatically allow the economic
growth by saving time and costs of operation. Giving orders and making payment through the
online facilities has activated the development of comparative advantages and the economy will
be mainly going towards a step ahead in the world trading as the time in receiving the payment is
reducing. Using the cloud computing and cloud storage and use of robotics has increased by
huge margin (Alexandria.unisg.ch, 2019). Using the storage will definitely allow the
incorporation of better and upgraded storage system that will definitely allow the economy to
grow and compete against each other by storing huge data. Presently due to the internet, the
communication is becoming easier and the operation has become easy. In order to indulge the
increased level of opportunity the economies will be bringing in better technology that will bring
the innovation in the economy.
Through the incorporation of better development of the resource, distribution will
definitely force the country to do trade and commerce and that will be done effectively. On the
other hand, through the improvisation of better and effective economic policies, nations will be
producing huge variety of goods that will increase the quality of the products and the economy
will be able to trade as per their criteria (Alexandria.unisg.ch, 2019). It is important for the
development of the resource distribution that will automatically increase the comparative

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advantage. Introduction of method of comparative advantage will allow the economy to increase
the rate of production.
Proper utilization of locally available tools and resources will allow the economies in developing
the cost minimization technologies. This is important aspect in the sense that through the
improved level of the economic growth of the economy (Alexandria.unisg.ch, 2019).
Digitization will definitely allow the incorporation of better technologies that will be mainly
highlighting the importance of the economic growth. This is one of the important aspect in the
sense that through the involvement of better supply chain management will be helpful in
increasing the goods and services. On the other hand, through the resource utilization nations
will definitely indulge in the channelization of the growth opportunities. This is important in the
sense that through the development of required level of the economic challenges economies will
identify the gaps in their investment (Burstein & Vogel, 2017). The presence of increasing
returns to scale also interferes with the Ricardian assumption of perfect competition. However,
the absence of perfect competition need not invalidate the Law of Comparative Advantage. This
is important because physical infrastructure of the internet, such as the trans-oceanic fiber-optic
cables that transmit the signals and are owned by companies charging internet service providers
for their use (Chaney, 2018). On the other hand, through the innovation in the economic growth
the economy will be mainly analyzing the incorporation of better development of the production
ability of resources. Nowadays, the trading economies are highlighting the development of
digital trades regarding the overall import and export of goods. This is important in the sense that
through the involvement in the international trade the overall methods of improved trade and
commerce will happen. The resource navigator in the form of trade will act in the development
of proper policies of trade that will allow proper functioning in the decision-making system. This

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will easily allow the economy to go with the flow and will be looking to improve the
comparative advantage that the economy is going through this phase.

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Conclusion
The whole study is going to identify the fact that Ricardian comparative advantage is
coming in the trade and commerce even if the economy is digitally indulging in trade and
commerce. Through the resource distribution, economy will be aiming to highlight the
incorporation of better improvement in the policies. On the other hand, through the incorporation
of digital trade the economy will definitely try to minimize their cost that is going to indulge the
resource development. This is important in the sense that through the utilization of resource, the
economy will be aiming to increase their business.

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Reference list
Alexandria.unisg.ch. (2019) Retrieved 28 April 2019, from:
https://www.alexandria.unisg.ch/253128/1/
Bertoletti, P., Etro, F., & Simonovska, I. (2018). International trade with indirect
additivity. American Economic Journal: Microeconomics, 10(2), 1-57.
Burstein, A., & Vogel, J. (2017). International trade, technology, and the skill premium. Journal
of Political Economy, 125(5), 1356-1412.
Chaney, T. (2018). The gravity equation in international trade: An explanation. Journal of
Political Economy, 126(1), 150-177.
Coşar, A. K., & Fajgelbaum, P. D. (2016). Internal geography, international trade, and regional
specialization. American Economic Journal: Microeconomics, 8(1), 24-56.
Edmond, C., Midrigan, V., & Xu, D. Y. (2015). Competition, markups, and the gains from
international trade. American Economic Review, 105(10), 3183-3221.
Grossman, G. M., Helpman, E., & Kircher, P. (2017). Matching, sorting, and the distributional
effects of international trade. Journal of political economy, 125(1), 224-264.
Neary, J. P. (2016). International trade in general oligopolistic equilibrium. Review of
International Economics, 24(4), 669-698.
Vernon, R. (2017). International investment and international trade in the product cycle.
In International Business (pp. 99-116). Routledge.
Viner, J. (2016). Studies in the theory of international trade. Routledge.