Which of the following fails to explain interindustry trade ?
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Answer: D. high per capita incomes in exporting countries
Explanation
High per capita incomes in exporting countries explain intraindustry trade rather than traditional interindustry trade. Interindustry trade is driven by differences in factor endowments, climate, and comparative advantage. Wealthy nations trade similar manufactured goods with each other, which falls under intraindustry commerce. Interindustry trade involves the exchange of completely different products between countries, such as textiles for oil. Factor endowment theory suggests nations export goods that intensively use their abundant domestic resources. Comparative advantage forms the theoretical foundation explaining why diverse nations engage in specialized trade.
Trade between developed industrial nations and developing agrarian economies is predominantly interindustry in nature. Understanding trade patterns helps economists evaluate the distributional impacts of international commerce. Mercantilist views on trade were largely replaced by modern comparative advantage theories developed by classical economists. High transportation costs relative to product value limit long-distance trade, explaining interindustry patterns. Different agricultural growing seasons create distinct comparative advantages that drive interindustry food trade. Product differentiation explains intraindustry trade in similar goods rather than traditional interindustry exchange.
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