The division of labour in European Monetary Union : absolute versus comparative advantage

Abstract

It is accepted that the stability and effectiveness of European Monetary Union (EMU) is now decisively dependent on the introduction of the greatest possible flexibility into the labour market. This, of course, entails in the long-term a fundamental change in the European division of labour: Namely, it will no longer be governed by the law of comparative advantage, but rather by the law of absolute advantage. If the real economic world was adequately described by the usual Ricardian model of international trade, then the aforesaid change would set in motion strong processes of unequal development between countries and regions. In this paper we investigate whether the conclusions that emerge from the usual Ricardian model retain their validity within the context of more realistic models (i.e. existence of reproduced means of production and joint production). The general conclusion to be drawn from this investigation is the following: The existence of processes of unequal development cannot be excluded. However, the concepts and propositions of traditional theory do not help to identify those evolutions which take place in economic reality. Consequently, any further discussion, at both a theoretical and empirical level, should begin with this given.