INTRA-INDUSTRY TRADE

Intra-Industry Trade

Intra-Industry Trade

The importance of it is that there are quite a few theories of trade when you are more look but the two big theories of trade firstly comparative advantage which is all based on the assumption that countries are all going to export one type of good and import a different type of good because it is all based on the idea that countries will have different relative efficiencies in different types of good and in the main theory, the Heckscher-Ohlin theory, that is based on differences in factor endowment so countries that have got a lot of fertile land will specialize in food countries that have not got much land would have got a highly educated and sophisticated workforce, they will specialize in high tech goods and that what is what. But most trade is not like that. Most trade is like in category “B” most trade is where countries import one type of good and export the same type of good. So cars can be a classic example cars will be our example if you like cars motivating the theory now.

So you need both theories of trade there is a lot of comparative advantage based trade and you can see comparative advantage based trade very readily and there is also a lot of this other trade so part “B”. Well the first thing this is known as intra-industry trade and its characteristics is mainly between developed economies not all of it but quite a bit of it and its much largely single primary trade (Macrory, pp. 8-9).

Obviously when you do your answers you know these little things are put under that they are not really central to the question but obviously if you make those points you know there is something I can give you credit for in marking the answer so it important thing that you do it in that sense. But the basic jest of why this happens is basically a combination of different consumer preferences and economies of scale so here's the foot line of intra-industry trade. Without trade countries have lesser choice unless it happens to be a large economy like the United States, United States is a very large economy and therefore it's possible in the United States to exploit economies of scale and have lots of variety as well because the size of the economy is big. So if you do enough trade US could get these benefits to some degrees itself. Now most economies are simply not big enough to exploit all economies of scale and get variety at the same time, so it's either exploit economies of scale or add choice of high cost

Intra-industry trade allows you to have low costs and plenty of choices. So that is the basic we get from intra-industry trade it is something that delivers different type of benefit to comparative advantage trade. Comparative advantage based trade allows you to consume a bigger basket of goods if you like in terms of ...