Static and dynamic advantage: A multi-period analysis with declining terms of trade

An attempt is made to reconsider the theory of comparative advantage from a more dynamic perspective than is found in the literature. It is possible to demonstrate that the basic Ricardian theory of comparative advantage, including its extensions, is too static a theory on which to rest a first-best argument in favor of free trade in quite a number of realistic scenarios. Especially for poor, less-developed nations, it is shown that the generalized argument in favor of free trade policy derived from trade theory cannot be sustained once one takes the long-term historical trend of the terms of trade into consideration. When comparative advantage is understood as a dynamic concept and process, violations of free trade may be desirable, necessary, and first-best for some nations.