6.1.4—Limits of advantage theories

The simple comparative-advantage model assumes, among other things, limited transport costs, competitive markets, known opportunity costs, mobile resources within countries and no harmful externalities.

Real economies have economies of scale, changing technology, imperfect competition, trade costs, environmental damage and workers who cannot move quickly between sectors. These factors can change the size or distribution of gains.

A cheap imported product may reflect genuine efficiency, but if its production creates unpriced pollution, the market price understates the social cost and the simple welfare conclusion is incomplete.

A model’s conclusion is conditional, not a guarantee that every observed trade pattern or policy follows directly from comparative advantage.