... for specialisation and trade centres on the proposition that a country or region may attain levels of production, consumption and economic welfare which are beyond their PPC. Adam Smith's principle of absolute advantage states that countries should specialise in producing those goods in which they are most efficient i.e. where they produce a larger output of a product than another country from less inputs. David Riccardo's Comparative Advantage theory suggests that though one country might have an absolute advantage in the production of all commodities because of the nature of its factor endowments, trade between countries would be mutually beneficial as long as their domestic opportunity costs of production differ. As a result consumption increases through specialisation and trade compared to a situation of self sufficiency. But this analysis is purely static assuming given technology. In terms of the Venetian state one source of its prosperity was its high level of ...

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