LIMITATION OF COMPARATIVE COST THEORY

1.       Restrictive Model:  Ricardo’s theory is based on only two countries  and only two commodities. But international trace is among many countries with many commodities.

2.       Full Employment : The assumption of full employment helps the theory to exaplin trade on the basis of comparative advantage.  The  reality is far from full employment .  

3.       Ignore Transport Cost: Another  serious defect is that the transport costs are not consider in

determining comparative cost differences.

4.       Static Theory:  The modern economy is dynamic and the comparative cost theory is based on the assumption sand static theory it assumes fixed quantity of resources if does not consider the effect of growth.