Criticism of the classical theory

CRITICISM OF THE CLASSICAL THEORY.

1. This theory assumes that labor is the only factor of production and it

ignores the other factors such as Land, Capital and enterprise etc. 2.Theory is based on the assumption of full employment, therefore it is unrealistic.

3. Labor is not perfectly mobile in a country, especially like India with its different languages, cultures and climates. Further, workers in construction industry cannot move to IT industry with ease.

4. A theory cannot be based on constant returns. In this dynamic world technological advances are increasing productivity effectively. The theory assumes no such changes and seems to be unrealistic.

5. Movement of goods from country to country involves significant transport costs. These are ignored by the theory. Free trade assumed by the theory is incorrect.

6. The theory fails to take into account time element for storage and ignores interest cost.

7. The theory ignores the cost of transport, which is an important factor in determining the cost ratio. Such costs effect the flow of goods from one country to the other.

8. The theory is based on two countries two commodities case while realistically international trade is multidimensional and involves more countries.