Referring "Ricardian model", and evaluating the claim of developing countries that they are at a disadvantage in trade with powerful industrialized countries(Global Economics)

The Ricardian model emphasizes on the benefits brought in by the trade among the involved countries. The model focuses on comparative advantage and appeals for export of the products which has lower opportunity cost and import the ones having higher opportunity cost of production. In simple layman views, it analyzes cost and benefit of production across the borders. Though in general Ricardian doctrine postulates that trade benefits all the countries involved, some school of thought still holds which annex the loss to the developing and underdeveloped countries.

Generally, in context of the resource-rich developing countries they have cheap labor, their minimum cost of production helps them to export the products in which they have comparative advantage, but in the long run due to overspecialization in an industry it leads to create a dependency and even a small shock or protectionist move from industrialized country jeopardize the export industry of developing or underdeveloped countries. The context had happened to Nepal when a quota system for the export of garment products was abolished by United States of America (Dhakal, 2013). This lead to ballooning of perennial trade deficit.

In short run, the specialization leads to increase the employment rate, and soon the demands for the labor start to rise; it ultimately may increase the wage rate making the product costlier. The labor market may agitate to imitate the wage to other industries which may in general increase the price level through the economy of developing countries and create inflation.

Basically, it is seen that the developing countries specializes in the homogenous product, the Ricardian model holds appropriate for the country which has heterogeneity in product specialization so that in times of turmoil and global economic shocks, its portfolio rebalances to other products. An example could be  Saudi Arab, due to the global oil shock, for the first time in the history had recorded a trade deficit (Tully , 2014), the comparative advantage that it had was rappelled by oversupply of oil from countries like USA and Iran(after the end of sanction it had from United Nations)

Further, the developing countries are net importing countries, in terms of the value they import more than they export in goods they have relative advantage, and due to the oversupply of their currency in the forex market the value of the currency also decreases making their imports even more costly and ultimately increasing a trade deficit. At the one hand their specialization is exported by the strong currency of industrialized country and another hand are importing goods from its weak currency escalating the trade gap. The export to import ration of Nepal is 1:13 as on mid-August 2017 (Ministry of Finance, Nepal, 2017)

Similarly, the floating exchange rate regime also creates uncertainty in the trading of products, depreciation or devaluation of the currency by advance/industrialized economy makes the export dearer for importing country, a perfect apotheosis could be a currency battle between USA and China (Belvedere, 2015). The shift in the foreign exchange rate impacts the way of trading, generally, the increase in the rate negatively influences the import as well as the export of the developing countries

In general, the currency of the industrialized countries are stronger than that of developing countries, a unit of currency form industrialized can produce more resources or products from the developing countries, it leads to the drainage of scare resources to the developed economies. To take an example, countries like Nepal, Bangladesh are maintaining their Balance of Payment (BoP) through the remittance income from the young generation going for the foreign work in countries like Malaysia, Qatar, and Saudi Arab. Though for the time being it would be beneficial but the drainage of the human or intellectual resource out the country in long-run will negatively impact the intellectual growth of developing countries.

Moreover, it is seen that the developing countries specializes in the primary goods basically due to the lack of updated technologies and budget for capital investment. On the one hand they export primary goods which are easily imported by the stronger currency of industrialized country but on the other hand, they import capital goods from industrialized countries from their weak currency which even inflates the trade deficit and even weakens the domestic currency making the import even dearer .

To conclude, though it is inferred that the international trade benefits all, in the present context of liberalized and globalized economy it is generally found that the developing countries often loses against the industrialized ones which are basically due to the underdeveloped capacity and lack of appropriate skills of the developing countries to specialize in high ends goods and services. Further, it could be inferred that due to lack of heterogeneity in production specialization, impracticability of complete specialization, lack of capital-intensive investment prioritization, and lack of political and economic structural developments developing countries have not been able to reap the benefits from international trade as postulated by Ricardian model.

Bibliography

Belvedere, M. J. (2015, August 11). Currency war? How China devaluation may impact Fed. Retrieved September 2, 2017, from www.cnb.com: https://www.cnbc.com/2015/08/11/currency-war-how-china-devaluation-may-impact-fed.html

Dhakal, D. (2013). Impact of Quota Phase Out in Garment Industry of Nepal. Bodo: University of Nordland.

Ministry of Finance, Nepal. (2017). Monthly Foreign Trade Statistics. Retrieved September 2, 2017, from www.customs.gov.np.com: http://www.customs.gov.np/en/statisticsmonthly.html

Tully, A. (2014, December 29). Saudi Facing Largest Deficit In Its History. Retrieved September 2, 2017, from www.oilprice.com: http://oilprice.com/Energy/Oil-Prices/Saudi-Facing-Largest-Deficit-In-Its-History.html