Testing the Ricardian Model: Do the Data Confirm the Assumptions?

Abstract

The insight of David Ricardo’s international trade theory can be proved by the way he managed to capture the economic problems of his era and by the fact that his theory is still studied and applied in the construction of new economic models and theories. Ricardo has accepted Adam Smith’s idea, that the “absolute advantage” determines domestic output and trade between countries, under the assumption of perfect mobility of factors of production. The aim of this paper is to do an empirical analysis of Ricardo’s model not only to test the validity of his assumptions, but also to see what are the main categories of goods that the European Union, the United States and Japan export and which specialization should each of them choose.