chapter  II
Comparative Costs and Commercial Policy
Pages 18

Let me begin with the pure theory of international trade and the law of comparative costs. It is convenient to start with a brief statement of comparative-costs doctrine in its neo-c1assical form, as it has been elaborated by Ohlin and a number of other writers.l Such a statement would run as follows: First, international trade takes

place, and countries derive benefit from it, because different countries possess different comparative advantages in the production of different goods, or have different comparative costs of production. Secondly, these cost differences are largely to be associated with differences in the relative availability of different factors of production, as reflected in their prices. Thirdly, the effect of international trade (ignoring the influence of transport costs and other trade barriers) is to tend to equalize prices of commodities in different countries, to permit specialization of countries on the production of those goods in which they have comparative advantages, and to tend to equalize the prices of factors of production as between the different countries.