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Linder Hypothesis

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LINDER HYPOTHESIS

INTRODUCTION

The Linder hypothesis is an economics conjecture about international trade patterns. The more similar the demand structures of countries, the more they will trade with one another. Further, international trade will still occur between two countries having identical preferences and factor endowment. Relying on specialization to create a comparative advantage in the production of differentiated goods between two nations. It is very important to know about this hypothesis. This is so because it talks about the various patterns that are involved in the international trade. There are a number of good reasons behind this. This can be due to the variation in the natural resources, the human resources, the ways and methods that are used in combining these resources efficiently and so on. It is important to know that when a country can use the same resources as the others and produce more quantity in a lesser time or at cheaper rates, it would be at advantage. That would be the trade that it should choose. There are the countries which have naturally supportive resources for them to do better in that particular field that they are choosing, which may not be possible in the other countries. This would be the major reason why there are specializations seen for each country. These are also based on the opportunity costs that are involved for each of these products.  There is voluntary exchange seen when there is gain for both the parties that are involved in the trading process. It is true for all, for the individuals and also the organizations. When there is specialization done in the area in which there is increased production and also consumption, it would be a profitable one. It would be profitable when done at low costs only. The international trade is seen to focus on few important concepts that are the opportunity costs, the absolute advantage, the specialization terms and also the comparative advantage. There are a few objectives...

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