DETERMINATION OF TRADING PARTNERS: Country Differences

Country Differences

Thus far in this chapter, the theories to explain why trade takes place have focused on the differences among countries. These theories tend to explain most of the trade among dissimilar countries, such as trade between an industrial country and an LDC or trade between a temperate country and a tropical one. On the basis of these theories we would expect that the greater the dissimilarity among countries, the greater the potential for trade. For example, great differences in climatic conditions would lead to greatly differr entiated agricultural products. Countries that differed in labor or capital intensities would differ in the types of products they could produce efficiently. And national differences in innovative abilities would affect how production of a product would move from one country to another during the product's life cycle. A number of factors help to explain why a country trades more with one partner than with another.19 The most important factors are described in this section.

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