Question

How does Staffan Linder explain world trade patterns? To what extent is his concept applicable to today’s trade practice? Discuss in detail.

Answer 1

In 1961, Staffan Linder proposed that economies with similar income on a per capital basis consume similar quality products. Thus, they come together and trade with each other. As per the hypothesis, Linder said that each country specializes in certain products that are traded with another country to meet their demand and vice versa. It starts the trade among nations across the globe. This hypothesis is opposite to the Heckscher-Ohlin theory that says that countries with a dissimilar income level should trade with each other.

In today’s trade practice, Linder hypothesis is present in a limited extent and it is applicable in manufactured goods only. Today, trade treaties are not limited between similar income nations. Trade is being done among those nations who differ from each other in terms of per capita income, technology and nature of goods producers. Today, capital intensive nations are trading with labor intensive nations that is opposed to Linder hypothesis. Emergence of multilateral trade agreement among nations have also aided to bring in dissimilar nations at one platform. On a regional basis, when two similar nations agree to trade with each other, then Linder proposition is looked into it.
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