Comparative Advantage in the Globalization Debate : Connecting the Dots

Much of the globalization debate revolves around differences in living standards across nations after trade, not just the Ricardian gains as one moves from autarky to free trade. Further, productivity growth stemming from greater competition arguably outweighs the Ricardian gains in the long-run. Nonetheless, in a principles course, productivity is typically presented separately from comparative advantage and international trade. This paper presents a simple method to connect productivity and comparative advantage. A two-nation problem based on given absolute costs and resources is worked. Then, both absolute costs and resources for one nation are scaled by the same amount. While trade patterns do not change, the nation with the new absolute costs sees its living standards change. Students see that productivity matters, and how it matters