In international trade theory we say a country has absolute advantage in the production of a good with regards to another country when it can produce more units of this good with fewer inputs. Logically it all comes down to productivity ratios, as one country can produce more output with fewer inputs.
We will show an example with two countries. Let’s say England employs 10 units of labour to produce 1 unit of cloth and 12 units of labour to produce 1 unit of wine, while Portugal employs 14 units of labour to produce 1 unit of cloth and 8 units of labour to produce 1 unit of wine. As you can see in the adjacent figure, England has an absolute advantage in the production of cloth, while Portugal has an absolute advantage in the production of wine. Therefore, England will produce cloth and trade it with Portugal’s wine.
Under this theory for trade to happen between two nations, neither of them will have to have absolute advantage over all of the goods. Furthermore, if a country had either absolute advantage over production of all goods or over none, no international trade would happen, since countries would not gain from trading with each other. However in the first case this would be due to a lack of interest from the country to trade with the rest of the world, where as in the second case this would occur due to the opposite.
Adam Smith is considered the father of this theory due to his paper “An Inquiry into the Nature and Causes of the Wealth of Nations” 1776 where he only considered labour as a productive factor.
As opposed to this theory, the comparative advantage theory was developed by David Ricardo, where even if a party doesn´t have absolute advantage it may have comparative advantage and so trade would occur. While absolute advantage implies that one of the parties is better at producing a given good, comparative advantage relates to the opportunity cost of producing that particular good instead of producing some other good.