Country Similarity

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Lindner's Country Similarity theory suggests that most trade in manufactured goods should be between

countries with similar per capita incomes and that intraindustry trade in manufactured goods should be

common.

CONOMIC SIMILARITY OF DEVELOPED COUNTRIES:

y This theory suggests that intra-industry trade takes place between the countries with similar

levels of development.

y 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.

y 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

y However mostly developing countries do not trade between themselves as the surplus of most

of these countries would be raw materials and agricultural products and their requirementswould be technology and high technology-oriented products.

Example: Vietnam and Ethiopia.

Basis for trade among countries

y 1) Similarity of location

y 2) Cultural similarity

y 3) similarity of political and economic interests

Countries prefer to export to the neighboring countries in order to have the advantages of lesstransportation cost.

For example, Finland is a major exporter to Russia due to less transportation costs.

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.

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 friendlycountries. For example, India used to export to the former USSR. The enmity of the USA with Cuba

resulted in the USA importing of sugar from Mexico by abandoning sugar import from Cuba.


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Country Similarity

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