What Are The Conclusion And Qualifications Of Comparative Advantage?

We have now completed our look at the elegant theory of comparative advantage. Its conclusions apply for any number of countries and commodities. Moreover, it can be generalized to handle many inputs, changing factor proportions, and diminishing returns. But we cannot conclude without anything two important qualifications of this elegant theory.

From a theoretical point of view, the major defect lies in its classical assumption. The theory assumes a smoothly working competitive economy with flexible prices and wages and no involuntary unemployment. In such cases trade might well push a nation inside its production possibility frontier falls. When the economy is in depression or the price system malfunctions, we cannot be sure that countries will gain from trade or that the theory of comparative advantage will hold in every case.   

A second proviso concerns the impact on particular people, sectors, or factors of production. We showed above that opening a country to trade would raise a country's national income. The country can consume more of all goods and services than would be possible if the borders were sealed to trade.