Stripping Away Ricardo’s Assumptions

Finally we strip away David Ricardo’s restrictive assumptions one by one to find out: does Ricardian theory hold up even without these assumptions, in the real world? We explore the Production Life Cycle hypothesis, where countries move up the value chain, initially moving from agriculture into simple manufactures as they open up to trade, and progress through to higher and higher levels of production over time. We see how intra-industry trade, which accounts for a significant portion of the world’s trade overall, fits nicely within the Ricardian model. We present the Boeing 787 Dreamliner as a case study in intra-industry trade.