The Riparian model is a very simple one, as it was exposed taking into account only two goods of which a country will specialize and export that in which it has a comparative cost advantage as compared to other country and will import the goods having less comparative advantage (or a comparative disadvantage) in its production cost.

Haberler however suggests a generalized theory of comparative costs applicable to many goods in consideration as follows.

Country I possesses a comparative cost advantage over country II in its exportable relatively to all its importable. So is in the case with country II.

Proof of the theorem

Let us assume that,

Country I has t incur labour costs of a₁, b₁, c₁………. n₁ to produce a unity of commodities A, B, C…N.

The supply prices – money cost per unit of these commodities are Pa₁, Pb₁, Pc₁, ….. Pn₁, respectively.

Similarly, country II has to incur say a₂, b₂, c₂ … n₂ of labour- costs to produce these very goods (A, B, C, .. N) And their supply prices in this country are thus Pa₂ Pb₂, Pc₂ … Pn₂,

Suppose, now, the average money wage in country I is W₁, and in country II, it is W₂,

It thus follows that

In country L:

Pa₁ = a₁w₁: pb₁ = b₁w₁ … Pn₁ = n₁w₁

In country II

Pa₂ = a₂w₂: pb₂ = b₂w₂ … Pn₂ = n₂w₂

Thus it can be said that the relative prices in each country are fixed by the labour costs, as

Pa₁ Pb₁.. Pn₁ = a₁: b₁ … n₁

And

Pa₂: Pb₂ … Pn₂ = a₂ : B₂ .. n₂

For determining the absolute level of the money price, the absolute rates of prevailing money wages have to be included in the data

From costs data alone, however, we cannot draw the dividing line between the categories of good produced by countries I and II. For determining the exact position of the dividing in, we must consider the comparative strength of internaitol demand for the different goods. It has been stressed that a county export and import will depend on the demand pattern once cost conditions are specified. Further, the requirement of foraging exchange equilibrium as well as of balcony of payments equilibrium would fix up the marginal commodity in the export list of each country.

Suppose, now that the balance of payments for country I is adverse (say because of its high imports form country II). Assuming gold standard of the classical era, the gold will flow from country I to II, as a result of this prices and wages will rise in country II and decline in I. that means W₁ becomes smaller and W₂ greater, so that the quotient W₂/W₁ rise (becoming greater than1). Te dividing line will shift to the right E will now is included in the exports of country 1. Now the balance of payments will tend to be in equilibrium because E is now export; the other export commodities A to D of country have become cheaper, so that aggregate quantum of exports fo I will rise the imports of F, G and H from country II will be dearer, so it will decline. The outflow of gold form country I to II will continue and the dividing line will go on shifting till a perfect equilibrium in the balance of payment is reached.

It is now easy to see that in Recording two commodity model the demand condition has been dispensed with conveniently. In a multi comparative costs doctrine, however, the reciprocal demand conditions have been given due consideration, as it is an important factor determining the quotient W₂ W₁ R₁ which demur cats between the exports and imports of a country. In this way the multi commodity model of Haberler represents an improvement over the Riparian model explaining the same principle fo comparative costs advantage.

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