A General Model of Comparative Advantage and the North-South Trade

Comparative advantage is the most important foundation for world trade. Yet comparative advantage is usually explained by a series of unrelated models. We present a general model that incorporates all three distinct sources of comparative advantage: differences in technologies, differences in factor endowments, and differences in external economies of scale. Apart from being a versatile teaching tool, this model is especially appropriate for describing the trade pattern between developed and developing economies and for analyzing some important issues of trade policy and industrialization relevant for developing economies.