MacDougall compared export ratios and labor productivity ratios for the United States and the United Kingdom in order to test the
|a. Ricardian theory of comparative advantage|
b. Heckscher Ohlin theory of comparative advantage
c. Linder theory of overlapping demand
d. all of the above
The Correct Answer Is:
a. Ricardian theory of comparative advantage
MacDougall’s Comparative Analysis and Trade Theories
W. M. Corden MacDougall, an eminent economist, conducted a significant study comparing export ratios and labor productivity ratios between the United States and the United Kingdom. This analysis aimed to assess the validity of various economic theories that explain international trade patterns.
The correct option among the provided choices is “a. Ricardian theory of comparative advantage.”
Explanation of the Correct Answer:
a. Ricardian Theory of Comparative Advantage
The Ricardian theory of comparative advantage, initially developed by David Ricardo, asserts that countries should specialize in the production of goods in which they have a lower opportunity cost.
Opportunity cost refers to the foregone production of one good when resources are allocated to the production of another. According to this theory, specialization leads to increased overall output and, consequently, welfare.
MacDougall’s comparison of export ratios and labor productivity ratios aligns with the Ricardian theory. By examining the trade patterns between the United States and the United Kingdom, he sought to determine whether each country was specializing in the production of goods in which they had a comparative advantage.
If the export ratios reflected a concentration in industries where each country had a lower opportunity cost (as indicated by higher labor productivity ratios), it would support the Ricardian theory.
Explanation of Incorrect Options:
Lets delve deeper into why the other options are not the correct answer one by one.
b. Heckscher-Ohlin Theory of Comparative Advantage
The Heckscher-Ohlin theory focuses on factor endowments (such as labor and capital) and suggests that countries will export goods that intensively use their abundant factors.
While this theory is highly influential, MacDougall’s comparison of export ratios and labor productivity ratios specifically pertained to the assessment of comparative advantage based on productivity differences. Therefore, the Heckscher-Ohlin theory is not directly relevant to his analysis.
c. Linder Theory of Overlapping Demand
The Linder theory of overlapping demand posits that countries with similar levels of per capita income are more likely to trade with each other due to similar consumer preferences. This theory emphasizes the importance of demand patterns in shaping international trade.
However, MacDougall’s study did not focus on consumer preferences or per capita income levels. Instead, it concentrated on productivity differentials and their impact on trade patterns, making the Linder theory less applicable to his analysis.
d. All of the Above
Selecting “d. all of the above” implies that MacDougall’s analysis could have tested all three theories simultaneously. However, his study specifically targeted the relationship between export ratios and labor productivity ratios, making it primarily aligned with the Ricardian theory.
While the Heckscher-Ohlin and Linder theories are significant in their own right, they were not the primary focus of MacDougall’s investigation.
MacDougall’s comparative analysis of export ratios and labor productivity ratios between the United States and the United Kingdom was designed to evaluate the validity of economic theories explaining international trade patterns.
His study primarily supported the Ricardian theory of comparative advantage, which emphasizes specialization based on comparative productivity advantages. The other options, Heckscher-Ohlin theory and Linder theory, were not the central focus of MacDougall’s analysis and therefore do not directly apply to his findings.