Adam Smith Principle Of Absolute Advantage

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Adam Smith is recognised as the founder of modern economics and as one of the first and most famous thinkers who argued in favour of free trade. In economics context cited by Wikipedia, the principle of absolute advantage refers to the ability of a party which can either be an individual, or firm, or country to produce more of a good or service than competitors, using the same quantity of resources. Furthermore, Adam Smith explained the principle of absolute advantage in the context of international trade, using labor as the only input. Consequently, Ricardo, one of the most influential of the classical economists came up with the theory of comparative advantage which he attempted to prove using a simple numerical illustration, that international …show more content…
For developing countries like Malaysia, the contribution of trade to overall economic development is immense owing largely to the obvious fact that most of the essential elements for development such as, capital goods, raw materials and technical know-how, are mostly imported because of inadequate domestic supply. However, it is important to note that internal trade complements external trade since domestically produced goods are collected for export, while imported goods are distributed within the country, sometimes into remote areas. It also facilitates internal specialization and the division of labour between the various firms and geographical areas of the country. Therefore, the higher the level of internal trade the greater the level of specialization. This raises the level of efficiency and productivity of the various economic units Anyanwuocha (1993), Bernard (2004) support that study of international trade is important because commonly export has a positive impact on the growth rate of aggregate …show more content…
Also, as a platform for growth and employment exports plays an important role. For example, a research study by Michaely (1977), Feder (1982), Marin (1992), and Thornton (1996), found that countries exporting a large share of their output seem to grow faster than others. The growth of exports has a stimulating influence across the economy as a whole in the form of technological spillovers and other externalities. Also, we looked at 2 Models by Grossman and Helpman (1991), Rivera-Batiz and Romer (1991), Romer (1990) posit that expanded international trade increases the number of specialized inputs, increasing growth rates as economies become open to international trade. Besides that, Yang (2003) stated that the export has positive impact to productivity growth rather than the other element in international trade such as import

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