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Does Comparative Advantage Still Explain Trade?

October 31, 2025

Comparative advantage is one of the first things you learn in economics. Countries should export what they're relatively better at producing, and everyone benefits from trade. But that's a two-country, two-good model. Does it actually hold up when you have hundreds of countries, thousands of goods, and trade barriers everywhere?

Deardorff tested this in 1980 by building a model that includes tariffs, transportation costs, and other restrictions. He found that while comparative advantage doesn't always work perfectly for individual goods, it holds on average. Countries still tend to export goods that are relatively cheaper for them to produce and import goods that are more expensive.

I like that the paper takes something abstract and shows it works in a general sense, even with real world complications. My issue is that it's very technical and doesn't connect to actual trade data. It's hard to picture what "average relationship" means between real countries.

I wonder if what Deardorff describes actually shows up in modern trade data. Trade today is a lot more complex than in 1980, with services, technology, and supply chains across many countries. Comparing production costs, export patterns, and prices using World Bank, WTO, or OECD data would be a good way to check if the same patterns are still there.