Country similarity theory
- 1. Soumya ranjan sahoo UPG 16MFM 036
- 2. Country similarity theory was developed by a Swedish economist named Steffan Linder. This theory suggests that intra-industry trade takes place between the countries with similar levels of development. According this theory, the companies that develop new products for the domestic market, export the products to those countries that are at similar level of development after meeting the needs of the domestic market. According to Linder, the similarities in consumer preferences in the countries that are at the same economic development provide the scope for intra-industry trade among countries. example India and China
- 3. Basis for trade among countries Similarity of location Cultural similarity similarity of political and economic interests
- 4. SIMILARITY OF LOCATION: Countries prefer to export to the neighbouring countries in order to have the advantages of less transportation cost. For example, Finland is a major exporter to Russia due to less transportation costs. CUTLURAL SIMILARITIES: Countries prefer to export to those countries having similar culture. For example, exports and imports among European countries, between USA and Canada, among the Asian countries, and among the Islamic countries.
- 5. SIMILARITY OF POLITICAL AND ECONOMIC INTERESTS: Similar political interests close political relations and economic interests enable the countries to enter into agreements for exports and imports. Countries prefer to trade with their politically friendly countries. For example, India used to export to the former USSR. The enemity of the USA with Cuba resulted in the USA importing of sugar from Mexico by abandoning sugar import from Cuba.
- 6. CONCLUSION Steffan Linder believed that international trade of manufactured goods occurred between countries at the same stage of economic development that shared the same consumer preferences. Therefore the country similarity theory consists of the value that most trade in manufactured goods should be between nations with similar per capita income, and that intra industry trade in manufactured goods should be common.
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