Inter industry trade theory

Answer 1

Inter-industry trade theory, also known as the Heckscher-Ohlin model, is a theory that explains international trade by focusing on differences in factor endowments between countries. The theory was developed by Swedish economists Eli Heckscher and Bertil Ohlin in the early 20th century.

According to the Heckscher-Ohlin model, countries will specialize in producing and exporting goods that are intensive in the factors of production that they have in abundance. This means that countries will export goods that require a high amount of their abundant factors and import goods that require a high amount of their scarce factors. For example, a country with abundant labor will tend to export labor-intensive goods and import capital-intensive goods.

Inter-industry trade theory differs from intra-industry trade theory, which focuses on trade between countries that produce similar goods. Intra-industry trade theory suggests that countries may trade similar goods with each other to take advantage of economies of scale, product differentiation, and other benefits.

Overall, inter-industry trade theory provides insights into the patterns and determinants of international trade by considering the differences in factor endowments between countries. It helps to explain why certain countries specialize in producing certain goods and why trade occurs between countries with different factor endowments.