Merits of classical theory of international trade are as follows:
Trade Possibilities:
This theory is able to demonstrate that scope of profitable trade is not limited to only the case of absolute cost differences. Trade is possible and profitable even when one country is able to produce all goods at lower cost.
This happens because the “low-cost” country can switch its production from those items in which its cost-advantage is smaller to those items in which its cost advantage is greater.
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By doing so, they said country gains more than it loses. It is like the owner of a company being more efficient than all his employees at each individual operation and also at taking policy decisions.
He, however, finds that he gains more by concentrating upon policymaking than what he loses by hiring less efficient persons for attending to other jobs.
Removal of Restrictive Assumptions:
It is possible to remove several restrictive assumptions of Ricardian theory, and bring it nearer reality without sacrificing its basic reasoning and conclusions.
Finer Specialisation:
Ricardian theory can be extended to explain the phenomenon of countries simultaneously importing and exporting different sub-varieties of the same product—that is, models and brands of a product with dissimilar features but for serving the same general purpose (such as computing, washing of fabrics, transport, etc).
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It means that modern developed economies hate started specialising in the production of models and varieties of several products and components such as those of cars, aeroplanes, computers and other electronic goods.
This finer specialisation has added to their overall productive efficiency. Basic logic of Ricardian theory can be used to explain this phenomenon.