After World War 2, new trade theories were developed as an alternative to HO model. These theories were fall into two main categories; (1) Theories developed to overcome some rigidities of HO model (2) theories developed to abundant HO framework. New theories are much general than HO model . It includes;
1) Human Skills Theory: Human Skills theory was developed by Donald Keesing (1965) as an alternative model to HO model . The main difference is that instead of focusing on difference in capital and labor across countries and goods, the theory argued that the importance of difference in endowments and intensities of skilled and unskilled workers. Thus some countries have skilled labor forces than others. Some products require greater intensities of skilled labor inputs than others and therefore countries that have large endowments of skilled labor will have comparative advantage in products that relatively intensive in skilled labor.
2) Product Life Cycle Theory: The theory was presented by Raymond Vernon (1966) and argued that for many manufactured goods, comparative advantage may shift over the time from one country to other country, because these products go through a product life circle. This life cycle involves a stage during which goods are invented and tested in the market place. During this period, the production of goods also undergoes considerable experiments. The theory suggest that because of the innovations and pervasion, the life cycle of many products can be divided into five stages: the introduction stage, growing stage maturity stage, declining stage and dying stage. The position of different countries is varied at different stages of the product life cycle .
3) Overlapping Demand Theory: Unlike supply driven trade theories and models discussed so far in this section, Stefan Linder (1961) presented overlapping demand theory by focusing demand driven aspects of manufacturing products in international trade. According Linder’s theory, in each country industries produce goods designed to please the taste of the domestic consumers. However not every consumer is alike and some prefer alternative products, with slightly different characteristics. International trade provides means to obtain these goods. Thus, the international trade is that consumers benefit of widely variety of goods. Further Linder explains relationship between similar standards of living and factor endowments in countries. Since the theory describes consumer preferences of both potential exports and imports countries, it is known as Similarity of Preferences Theory.
4) In addition, following theories could be considered as important alternative trade models that explained international trade in wider aspects: (1) Strategic trade theory developed by Paul Krugman (2001), in consideration of imperfect competition and increasing return to scale . (2)Intra-industry Trade Theory developed by H.G. Grubel, focusing on trade differences in developed and developing countries.(3)Competitive Advantage Theory presented by M. E. Porter in 1990. The theory reflects competitiveness of industries which determines by innovation and production efficiency .
Husted, Steven, and Melvin, Michael. International Economics, Pearson Education ltd and Higher Education Press: Addison Wesley Longman Inc, 2002 PP 147-217
Krugman, Paul, and Obstfeld, Maurice. International Economics, Addision Wesley, Longman: 2000 PP187-217, 218-249.
Linder, S.B. An Essay on Trade and Transformation, John Wiley & Sons: New York
Keesing, Donald. “Labor Skills and International Trade: Evaluating many Trade Flows with a Single Measuring Device”, American Economic Review, 1965:
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