Comparative Advantage and Exploitation: Wages and Unequal Exchange in a Ricardian Framework

Abstract

The paper revisits the Ricardian trade model by introducing the distinction between necessary and surplus labor from Marx, deriving a formal result that connects the class structure of production to the pattern of international specialization. The paper shows that a country can have lower absolute production costs in a good despite being technologically less efficient, provided its rate of exploitation is sufficiently higher than that of its trading partner. Under competitive money-cost pricing and homogeneous abstract labor, this condition shapes absolute cost competitiveness and, jointly with its counterpart for the second good, determines the trade pattern. Free trade may equalize commodity prices while leaving exploitation rates unequal, generating transfers of surplus value through the terms of trade. The paper thus formalizes, within a Ricardian cost-equilibrium framework, the mechanisms of unequal exchange identified by Emmanuel and extended by Roemer, while advancing both by incorporating technology differentials alongside exploitation differentials. It also highlights how, in labor-intensive export sectors such as Bangladesh’s garment industry, gender-based wage suppression contributes to high exploitation rates. A Bangladesh–United States calibration illustrates that the parameter values required for the results are empirically plausible.