1.
Assumption Of Labour Cost: The most
important criticism of the theory
of comparative cost is that it is
stated in labour or real terms. It
assumes that labour is the only factor of production consist of labour
cost alone. The theory igriores the
basic fact that labour is not the only facto[r of production and the production
costs include non- labour cost too
2. Defects of labour theory of value: the labour theory of value on which the
comparative cost theory is based has
long been discarded because of the following defects:
a.
The labour theory
is based on the unfounded assumption that labour is the only factor used in the production of
commodities,
b.
The labour theory
assumes homgenous labour, while in reality labour differs in inefficiency and
skill,
c.
Labour theory of
value assumes that if other factors are used along with labour, they are
combined in fixed proportions. But, reality,
capital labour ratio varies from industry to industry,
d. The labour
theory of value is also based on the
unrealistic assumption of perfect competition and perfect competition
and perfect mobility of labour.
e. The labour theory of value was discarded by the neo –
classical economists since it ignored
the role of utility in the determination of value
3. Assumption of constant cost: the theory of comparative cost assures the
existence of constant cost conditions.
It maintains that the additional units of the same commodities, can be produced
at the constant average cost . The
reality on the other hand, is that there are either increasing costs or
decreasing costs because of the
operation of the laws of
diminishing returns respectively constant costs are
the exception rather than the rule
4.
Assumption of factor mobility: the
classical theory of informational trade
is based on another unrealistic
assumption that factors of production are perfectly mobile within the country and perfectly immbile between the countries. The reality is quite different?
a. Within a country, factors of production do not more freely from one
industry to another and form one region to another. This is evident from the existence of different wage rates and interest rates in different industries and regions.
b.
Factors are not perfectly immobile internationally there
have been movement of factor
surplus to factor –scarce countries.
5.
Assumption of two commodities and two countries: another unrealistic
assumption of the theory of comparative
cost is that its operation is restricted
to two commodities and two countries the
theory breaks down when it is applied to the
nominal and more realistic situation of international trade among
more than two countries
6. Neglect of transport costs: the theory of
comparative cost does not take into
consideration the transport
costs . neglect of transport
cost is highly unrealistic because in production transport cost play an important role in influencing the
pattern of world trade. Infact, international trade occurs only when
the comparative cost advantage exceeds
transport costs
7. Static theory: The unrealistic
assumption liked the existence of full
employment fixed and constant supply of
factors of production etc, make the
theory of comparative cost a static theory
and render it unfit for the changing and dynamic world.
8. One sided theory: the comparative cost theory of international trade has been regarded as one sided theory because it takes into account only the supply
or cost side and ignores the demand
side, the neglect of demand conditions
is responsible for the theory’s
inadequate explanation for the determination of terms of trade. In the words of line the comparative
cost reasoning alone explains
very little about international trade . it is, indeed nothing more than an
abbreviated account of the condition
of supply
9.
Growing emphasis on self sufficiency: in
modern times, because of defence and other strategic reasons,
almost every country tries to achieve the objective of self sufficiency and may decide to produce certain good
even though they can be cheaply
imported form other countries. For
instance, all countries prefer to produce
military equipment at home even if it can be imported from aboard at
cheaper rates this the theory of comparative cost is unrealistic and has little relevance in the
actual world.
10. Improssiblity
of complete specialization: even if the
various assumption of the theory are accepted, the existence of
comparative advantage may not head
to complete specialization on the part
of two countries which enter
into international trade. as pointed out by frank gratin, this may happen when one trading country is big and the other is small. The small country will be in a position to special usefully as it can dispose of its surphs in the big country. But the big country cannot have
complete speicalisation of because of
the two reason:
a. The small country will not be able to meet all the
requirement of the big country
b. The surplus of the big
country will not be articly absorbed by
the small country.