This paper carefully analyzes a passage of Ricardo’s Essay on Profits ( 1923), which suggests that he clearly understood the effects of both interindustry as well as intraindustry trade. In the context of the Essay model, Ricardo argues that free interindustry trade involving an exchange of manufactures for agricultural good (from England’s point of view) raises the rate of profit through lowering the relative price of the agricultural good. On the other hand, where trade involves simply an exchange of manufactures for manufactures, these being produced under conditions of economies of scale (division of labour in manufactures (pg. 25 of Essay)), the rate of profit is unaffected although that exchange of goods does raise welfare by augmenting the variety of commodities made available through intraindustry trade. His Essay, therefore, is a precursor of the new trade theory.
Economic Theory | International Economics
Singapore Management University School of Economics and Social Sciences
City or Country
HOON, Hian Teck.
Is Ricardo's Essay on Profits a Precursor of the New Trade Theory?. (2002). 25-2002,. Research Collection School Of Economics.
Available at: http://ink.library.smu.edu.sg/soe_research/1188
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.