AN EMPIRICAL TEST OF THE RICARDIAN MODEL

The Ricardian model is a simple picture of international trade between nations ,which was created to show comparative advantage in producing goods and the gain from trade. The concept of comparative advantage was introduced by David Ricardo in 19th century. The country has comparative advantage in producing if it can produce at a lower cost than any other country .The Ricardian model has been developed on the following assumptions:

·        Only two countries are involved in activities

·        Only two goods can be produced

·        Labour is the only factor of production.