Question

Intuitively gains from trade in the inter-industry models of trade were driven by comparative advantage, what process drives the gains from trade in the intra-industry trade model.

Answer 1

Inter Industry trade model :

Trading of products between two different industries is referred as inter-industry trading. Such a trading model is primarily derived by comparative advantage in production as each industry can specialise in production of one product and, is better off producing and exporting that product to different industries.

Intra Industry trade model :

Trading of products between two players of same industry is referred as Intra industry trading. Such a trade model has experianced steep trend in the last decade due to the following reasons :

1) Product differentiation : Products of a single industry can have materialistically different set of features. To avail consumers with all the variants of same product, intra-industry model of trade is adopted. Using this model, companies attempt to capture large chunk of market share which, otherwise, would be very tidious task.

2) Simulating innovation : If an industry is consistently trying to add new lines of products with different features, it directly simulates innovation as differentiating a specific product requires it to have some added advantages over the other products of the same industry.

3) Globalisation : In intra industry trade model, the products of same industry compete against each other. Such a scenario requires the production of global standard products amount industries of all geographical boundaries. This, indeed, results in uplifting the level of product quality on a global scale.

Hence, the gains from trade in the intra indiustry model are derived by above three points.