DOI: 10.36347/sjebm.2015.v02i05.015

Pages: 535-549

In this theoretical study, we revisit the old Ricardian model of comparative advantage. Following an inframarginal methodology, we build an extended theoretical model based on the concepts of comparative advantage and transaction efficiency to explain development and inequality in developing economies. According to our model, an increase in domestic transaction efficiency reduces inequality within a developing economy while an increase in international transaction efficiency enhances the overall welfare level in a developing economy. The results of our model may have important policy implications for developing economies in their policy-making.