Theory of Comparative Advantage

David Ricardo strongly advocated the theory of comparative advantage - even if you can make a product cheaper in England, you should not do it if you can add more value with your resources (in some other way). You are better off buying from other countries even if it is more expensive because you have better alternatives for your resources such as capital, knowhow, people, land etc.


Ricardo was perhaps the first economist to champion what we call 'outsourcing' today.

This is how the British economy became global. In fact, htere has never been globalization in the world historically except for the British Empire.

The British also outsourced the manufacturing of two major industries: textile and steel, steel to America and textiles to India. This is one reason why even today India has a very large textile industry and America became one of the largest steel producers of the world.

Jagdish Sheth
"Making India Globally Competitive"
Vikalpa, October-December 2004