Question

Does intra-industry trade contradict the theory of comparative advantage?

Short answer

Intra-industry trade do not contradict the theory of comparative advantage.

Step-by-step solution

Step 1. Meaning of intra-industry trade.

It is a term used when referring to the situation whereby entities in different countries but operating in the same industry specialize in the same commodity and become partners in international trade.

Step 2. Meaning of comparative advantage.

It is an economy's ability to produce a particular good or services at a lower opportunity cost than its trading partners.

Step 3. Intra-industry trade between similar economics do not contradict the theory of comparative advantage. Instead, they help to broaden the concept.

Generally, in intra-industry trade the level of worker productivity is not determined by climate or geography, rather it is determined by how firms engage in specific learning about specialize products, including taking advantage of economics scale. Whereas, comparative advantage can be dynamic i.e. it can evolve and change over time as new skills are developed as the value chain is split up in new ways.