This idea was propagated by David Ricardo. Comparative advantage is derived from the notion of the division of labour, where an economy functions by individuals and businesses specializing in areas where they can be most productive or have a comparative advantage. Ultimately, this increases production efficiencies, decreases the prices of goods, and leaves everyone better off. The same concept can be applied on a global scale. Some countries have certain comparative advantages in their “factors of production” (technological, low labor costs, manufacturing expertise, natural resources). By opening up to international trade, countries specialize even more in their comparative advantages, and output is moved in the direction of activities that offer domestic factors of production the highest returns. Efficiency globally is increased, prices decrease, and purchasing power and living standards increase.
When a company is exposed to increased competition from abroad, they are forced to respond by innovating ways to increase productivity. Increasing productivity has long-term benefits both for the company itself and for consumers who likely see lowered prices per value or higher value per price. Free trade catalyzes this cycle by opening companies up to greater competition. It, therefore, helps increase productivity, higher purchasing power, and greater living standards.
Developing countries would not have access to the world’s most advanced technologies without international trade.