ECONOMICS

Theories of International Trade

Theories of International Trade

Linder's Theory

Linder has been one of the most prominent economists of all times since he had valuable expertise in the field of international trade. Linder proposed a significant international trade theory that has a profound impact on both the developed and developing economies. Linder was of the idea that trade in the context of manufactured goods was ascertained through domestic demand conditions. This demand centred explanation is in high contrast to the supply centric mechanisms which focused on intensities and factor endowments as sources of international trade and comparative advantage. According to Linder, countries would look to export products for which there is a large and substantial domestic market. The intricacies in the context of domestic market need to be studied closely as it forms a core mechanism of international trade in the eyes of Linder (Sen, 2010, pp. 5-6).

There must be a huge amount of production in domestic market for the countries to successfully realize scale economies. There would be no incentive for developed economies to expand towards domestic markets if they do not offer lucrative production quantities. The lower costs as a result of this process help in the penetration of foreign markets. The most high profile markets in the context of exports would be existent in those nations where tastes and income levels are can be compared easily with those of the exporting country.

With consumer tastes depending a great deal on the income levels, the nature of products produced in an economy are a significant function of ratio of per capita income in the country. In order to trade and produce, the representative demand in the specific countries should be characterized by an overlapping zone in the context of the different range of goods that have been produced and consumed in the society. The aspect of overlapping forms the base of international trade according to Linder (BIS, 2012, pp. 23-30).

Intra industry Trade with Product Differentiation

In line with the concept of economies of scale, product differentiation is known to distort the basic assumptions of the intra industry trade model. Thus the intricacies in the context of product differentiation in the context of intra industry trade must be gauged in a comprehensive manner. The role of intra industry trade is immense in the expansion plans for developed nations like UK because of the fact that they want to expand to other industries of similar nature. Many developed nations have looked to gain enhanced profits from intra industry trade because relying on one industry would not let them achieve the exponential growth expected from international operations. With the high level of demand generated in one of the countries for the individual varieties manufactured by the same country, the process makes huge space for intra industry trade across nations.

Such type of intra industry trade is possible to take place in the context of having dual directions. Intra industry within dual directions can be possible when the firms adopt ...