<blockquote>
<p>In The Wealth of Nations, Adam Smith talks about how countries should specialize in what they are good at and outsource the rest to those who do have CAs in other areas. It is theories such as these that are used by the governments of countries to formulate economic policies.</p>
</blockquote>
<p>This is incorrect, Adam Smith’s Wealth of Nations (WoN) doesn’t mention theory of comparative advantage. It discusses the theory of <em>absolute</em> advantage. Comparative advantage was only developed years after publication of WoN by completely different economist, David Ricardo, in his book On the Principles of Political Economy and Taxation.</p>
<blockquote>
<p>There are many countries (particularly modern ones) that have migrant workers come for a better life and take on manual and undesired labour by the locals. Is this an example of the theory of comparative advantages in reality?</p>
</blockquote>
<p>Technically speaking no even though mechanism is somewhat similar. Ricardo’s comparative advantage, or Smith’s absolute advantage theories are theories that try to explain trade in goods, not factor (e.g. labor or capital) movements. In fact in modern rigorous versions of these models factors are typically explicitly assumed to be immobile.</p>
<p>Theories that explain factor movements (including labor movements) are more modern international trade theories, such as for example variants of Heckscher–Ohlin model that allow for factor movements.</p>
<p>The mechanism of factor movements is somewhat similar to comparative advantage. Comparative advantage can be result of either difference in production technologies (Ricardo) or factor endowments (canonical HO model). However, what factor movements do is that they eliminate the comparative advantages due to different factor endowments (e.g. laborers moving from countries with scarce capital and abundant labor to countries with abundant capital and scarce labor).</p>
<p>You could also use comparative advantage model to explain within countries why some people specialize in some field. For example, you can use it to explain why doctor that is also amazing cook chooses to focus only on treating patients and hires someone else to do their cooking, but this doesn’t really really require migration.</p>
<blockquote>
<p>In that sense, what about skilled workers taking on jobs that are desired by locals (on the higher paying end), would that still be a valid example? In this case, would locals arguing against foreigners taking their jobs be an argument against the theory of competitive advantages and a setback to the country? Seeing as how the theory of CAs is meant to help everyone.</p>
</blockquote>
<p>As already mentioned, you could use CA to explain specialization between different people. I wouldn’t use it to explain labor migration. Also, CA doesn’t say that everyone is benefiting from trade it just says that benefits exceed costs but it’s possible for losers from trade to exist.</p>

CC BY-SA 4.0
2024-12-28T19:22:57.757Z
Thanks for your informative answer once again! So in summary, it *would* (as a whole) be a setback to the country (and against its interests) if locals argued against foreigner migration? I guess the correct theory to quote here would be Ricardo?
KaiSqDist
CC BY-SA 4.0
2024-12-28T19:36:08.747Z
@KaiSqDist no, that’s not what the answer above says, factor movements according to HO theory can be viewed as substitute for trade and are beneficial. But you can’t say they are beneficial for *everyone*. There can be losers from this factor movements. Also you can’t really use CA theory to explain it, at least not fully (u can use CA to explain why it would be good for doctor to hire (potentially) immigrant gardener
1muflon1
CC BY-SA 4.0
2024-12-28T21:11:31.113Z
Yup, so what I was trying to say is that on average people would benefit from factor movements (but there might be some losers as well). Therefore, as a whole, arguing against factor movements (in the form of immigrants) would not be beneficial.
KaiSqDist
CC BY-SA 4.0
2024-12-28T23:19:27.833Z
@KaiSqDist there is one more caveat. Yes, it would not be beneficial as long as you care about economic performance (e.g. GDP) or it can even be shown to maximize sum total of utilities people have. However, of course, no scientific theory can tell you what is beneficial for society that is ultimately moral question. A moral  ascetic might object. Or for example, a Rawlsian would object to it if it is not maximizing welfare of only the poorest member of society. Classical liberal would be okay with such migration regardless of economic impacts… but if you want to argue purely from economic
1muflon1
CC BY-SA 4.0
2024-12-28T23:21:08.093Z
perspective then free factor movements is beneficial. This is result from most economic models and there is also an empirical evidence confirming it, although it also shows that factor mobility can sometimes increase volatility of output (eg capital flight etc)
1muflon1
CC BY-SA 4.0
2024-12-28T17:25:46.390Z
2024-12-28T17:25:46.390Z
1muflon1
<p>In <em>The Wealth of Nations</em>, Adam Smith talks about how countries should specialize in what they are good at and outsource the rest to those who do have CAs in other areas. It is theories such as these that are used by the governments of countries to formulate economic policies.</p>
<p>There are many countries (particularly modern ones) that have migrant workers come for a better life and take on manual and undesired labour by the locals. Is this an example of the theory of comparative advantages in reality?</p>
<p>In that sense, what about skilled workers taking on jobs that are desired by locals (on the higher paying end), would that still be a valid example? In this case, would locals arguing against foreigners taking their jobs be an argument against the theory of competitive advantages and a setback to the country? Seeing as how the theory of CAs is meant to help everyone.</p>

CC BY-SA 4.0
2024-12-28T18:24:22.980Z
Comparative advantage is applied to trade. Migration is not an instance of trade. More relevant theories are the Roy model and factor demand theory. See for example Borjas's "Immigration Economics".
Jesper Hybel
<macroeconomics><competition><comparative-advantage><labour-economics>
On Adam Smith's Theory of Comparative Advantages (CA)
KaiSqDist
# On Adam Smith's Theory of Comparative Advantages (CA)

(Asked by: username_0 on 2024-12-28)

In *The Wealth of Nations*, Adam Smith talks about how countries should specialize in what they are good at and outsource the rest to those who do have CAs in other areas. It is theories such as these that are used by the governments of countries to formulate economic policies.

There are many countries (particularly modern ones) that have migrant workers come for a better life and take on manual and undesired labour by the locals. Is this an example of the theory of comparative advantages in reality?

In that sense, what about skilled workers taking on jobs that are desired by locals (on the higher paying end), would that still be a valid example? In this case, would locals arguing against foreigners taking their jobs be an argument against the theory of competitive advantages and a setback to the country? Seeing as how the theory of CAs is meant to help everyone.

**Tags:** macroeconomics, competition, comparative-advantage, labour-economics

> **Comments:**
> **username_1**: Comparative advantage is applied to trade. Migration is not an instance of trade. More relevant theories are the Roy model and factor demand theory. See for example Borjas's "Immigration Economics".  

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## 1 answers

### Answer by username_2 on 2024-12-28. Score: 4 | Accepted answer

> In The Wealth of Nations, Adam Smith talks about how countries should specialize in what they are good at and outsource the rest to those who do have CAs in other areas. It is theories such as these that are used by the governments of countries to formulate economic policies.

This is incorrect, Adam Smith’s Wealth of Nations (WoN) doesn’t mention theory of comparative advantage. It discusses the theory of *absolute* advantage. Comparative advantage was only developed years after publication of WoN by completely different economist, David Ricardo, in his book On the Principles of Political Economy and Taxation.

> There are many countries (particularly modern ones) that have migrant workers come for a better life and take on manual and undesired labour by the locals. Is this an example of the theory of comparative advantages in reality?

Technically speaking no even though mechanism is somewhat similar. Ricardo’s comparative advantage, or Smith’s absolute advantage theories are theories that try to explain trade in goods, not factor (e.g. labor or capital) movements. In fact in modern rigorous versions of these models factors are typically explicitly assumed to be immobile.

Theories that explain factor movements (including labor movements) are more modern international trade theories, such as for example variants of Heckscher–Ohlin model that allow for factor movements.

The mechanism of factor movements is somewhat similar to comparative advantage. Comparative advantage can be result of either difference in production technologies (Ricardo) or factor endowments (canonical HO model). However, what factor movements do is that they eliminate the comparative advantages due to different factor endowments (e.g. laborers moving from countries with scarce capital and abundant labor to countries with abundant capital and scarce labor).

You could also use comparative advantage model to explain within countries why some people specialize in some field. For example, you can use it to explain why doctor that is also amazing cook chooses to focus only on treating patients and hires someone else to do their cooking, but this doesn’t really really require migration.

> In that sense, what about skilled workers taking on jobs that are desired by locals (on the higher paying end), would that still be a valid example? In this case, would locals arguing against foreigners taking their jobs be an argument against the theory of competitive advantages and a setback to the country? Seeing as how the theory of CAs is meant to help everyone.

As already mentioned, you could use CA to explain specialization between different people. I wouldn’t use it to explain labor migration. Also, CA doesn’t say that everyone is benefiting from trade it just says that benefits exceed costs but it’s possible for losers from trade to exist.

> **Comments:**
> **username_0**: Thanks for your informative answer once again! So in summary, it *would* (as a whole) be a setback to the country (and against its interests) if locals argued against foreigner migration? I guess the correct theory to quote here would be Ricardo?  
> **username_2**: @username_0 no, that’s not what the answer above says, factor movements according to HO theory can be viewed as substitute for trade and are beneficial. But you can’t say they are beneficial for *everyone*. There can be losers from this factor movements. Also you can’t really use CA theory to explain it, at least not fully (u can use CA to explain why it would be good for doctor to hire (potentially) immigrant gardener  
> **username_0**: Yup, so what I was trying to say is that on average people would benefit from factor movements (but there might be some losers as well). Therefore, as a whole, arguing against factor movements (in the form of immigrants) would not be beneficial.  
> **username_2**: @username_0 there is one more caveat. Yes, it would not be beneficial as long as you care about economic performance (e.g. GDP) or it can even be shown to maximize sum total of utilities people have. However, of course, no scientific theory can tell you what is beneficial for society that is ultimately moral question. A moral  ascetic might object. Or for example, a Rawlsian would object to it if it is not maximizing welfare of only the poorest member of society. Classical liberal would be okay with such migration regardless of economic impacts… but if you want to argue purely from economic  
> **username_2**: perspective then free factor movements is beneficial. This is result from most economic models and there is also an empirical evidence confirming it, although it also shows that factor mobility can sometimes increase volatility of output (eg capital flight etc)  

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