Comparative advantage is a cornerstone of trade theory. Originally elaborated by David
Ricardo, it implies that countries which export goods produced more cheaply at home and
import goods produced more cheaply abroad will gain from trade. More generally, it
formalizes the insight of Adam Smith—that specialization in the production of goods allows
for greater efficiency in production, and hence lower costs. This, when combined with
unencumbered trade in competitive markets, results in greater aggregate levels of …