Synopsis International Trade Theories: Product Trade Theory Brief Extracted Absolute Cost e!

Countries have natural resources such Resources Advantage as oil" gas" dia#ond" #ineral ores" etc$ and have absolute advantage in exporting these products" depending on capital availability to extract natural resources for export$ Specific goods and Co#parative &ot all countries are endo!ed !ith uni'ue services as products Advantage goods and services in !hich they have an related to touris#" absolute advantage$ &epal has an absolute nature based advantage in exporting services in and resources" historic around the (i#alayan range$ (o!ever " the land#ar%s export capability depends on capital availability" trade #ar%" #ar%eting" and reputation of such goods and services Co##odity )oods actor +sually lo! inco#e countries are dependent and services as Proportions of on the export of agriculture and lo! end agricultural (ec%scher #anufactures$ E#erging countries are products" basic *hlin leading the !ay in the export of innovative #anufactures and high end goods and services$ The export capability depends on factor proportions ,factor intensity of production and factor endo!#ents of countries- and !hether they can achieve enough scale econo#ies to re#ain co#petitive in the global #ar%et Sophisticated Product life So#e countries invest heavily in certain Products or cycle sectors" leading to innovation" such as services !ith co#puters$ But over ti#e these technologies inco#e elastic are passed on to other countries and the de#and innovation leaders focus on bringing out even sophisticated or innovative products$ The sa#e products exported by so#e countries are over ti#e i#ported by the#selves fro# others as they pass on the technology and #ove on to ne! technological frontiers to produce innovative products$ (o!ever" the export capability depends on the countries. innovative capacity in the early stages" technology" capital availability and in later stages" scale econo#ies in production (igh value Co#petitive Countries should pursue policies that Products fetching Advantage encourage the production of goods and high price services in such a !ay that they are able to outperfor# co#petitors in the sa#e sector" i$e$ gain co#petitive advantage$ Basic idea

Ideas" innovation or &e! Trade technology Theory

behind Porter.s argu#ent is that there is abundant cheap labor in #any countries and dependence on natural resources is not good for the econo#y$ This runs counter to the argu#ent that countries should speciali/e in production of goods based on the relative factor endo!#ents$ Speciali/ation based on the availability of factor endo!#ents !ould lead to a lo! !age and lo! inco#e econo#y because exports of pri#ary products have lo!er price than i#ports of non0pri#ary products i$e ter#s of trade !ould not be favorable Those countries that can consistently invest in the ger#ination of ne! ideas" innovation and technology are al!ays ahead in the export of high end products and re#ain the first #over in the seg#ent for a !hile$ They also tend to have high inco#e per capita$ Export capability depends on sustained application of resources to!ards the creation of ne! technology or ideas$ This theory opens up possibilities for the state to intervene in certain strategic sectors