Question

What are the modern, firm-based international trade theories?

Answer 1

Modern Firm Based Trade Theories are:-

1. Product Life Cycle Theory

2. Country Similarity Theory

3. New Trade Theory

4. Porter's Theory of National Competitive Advantage

1) :-Product Life Cycle Theory are that theory which developed by Raymond Vernon under international product life cycle their are three stages: new product, maturing product, standardized produc

it is begins in stage 1, peaks in stage 2, slumps in stage 3; exports begin in 1, peak in 2, by 3 the innovating firm becomes an import Foreign competition begins at the end of 1, expands in 2 and starts exporting, by three the less developed countries may become net exporters

2) :-New Product Stage is that theory which occur with the firm developement and introduction of an innovative product; uncertain whether a profitable market for the product exists; pay attention to customer reactions with quick feedback; firm will minimize its investment in manufacturing capacity, most output sold in domestic market

3) :-Maturing Product Stage is theory which occur when demand for product expands dramatically as consumers recognize its value under this theory firm start to build new factories to expand capacity and satisfy demand; competitors begin to emerge

4) :-Standardized Product Stage is theory which occur when market for product stabilizes, more of a commodity, firms are pressured to lower manufacturing costs by shifting to countries with low labor costs; product begins to be imported into the innovating firm's home market

Country Similarity Theory created by Steffan Linder (1961)- suggests that most trade in manufactured goods should be between countries with similar pe- capita incomes and that the intra-industry trade in manufactured goods should be common

International trade in manufactured goods results from similarities of the preferences among consumers that are at the same stage of economic development

Inter-Industry Trade is occur during the

exchange of goods produced by one industry in country A for goods produced by a different industry in country B (French wine for Japanese clock radio)

Undifferentiated goods: coal, petroleum products, sugar (aka no brand names)

Intra-Industry Trade is occur when

trade between two countries of goods produced by the same industry **Key in he country similarity theory

Differentiated goods: cars, expensive electronics, personal care (aka brand names important)

5) :-Porter's Theory of National Competitive Advantage is theory Which is newest addition to trade theory; Porter believes that success in international trade comes from the interaction of four country

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