Comparative advantage and competitive advantage in International trade
Trade theories are developed according to the pace of time with improvements in each and every sector. It helps to formulate investment, trade policy. Trade theory helps to allocate the resources in an effective manner. Comparative cost advantage theory and competitive advantage theories are two development of theory to occur trade between countries. The findings of both of the theories differ in their own term.
The comparative cost advantage theory is developed after the absolute cost advantage theory. Absolute cost advantage theory assumed to trade if the country can produce at lower cost with the presence of abundant resources. However, comparative cost advantage theory has the benefit of abundance resource it should trade to those resources which it can produce relatively at the lower cost.
In another way, the competitive advantage was developed by Porter. It majorly focuses on innovation and upgrades to make the trade and gain competitive advantage. He has developed four reasons why any country can trade to gain competitive advantage: