COUNTRY SIMILARITY THEORY

• Developed by Swedish economist Steffen Linder

• This theory came into existence in 1961
• Based on intra – industry trade
• Mostly seen in countries with
1. Same per capita income
2. Similar infrastructure/distribution system
3. Same language/culture/religion/tastes etc.
Explanation
• Explains trade in differentiated goods
• Explains intra – industry trade. For eg:
1. Japan exports Toyotas to Germany
2. Germany exports BMW’s to Japan
• Countries with similar stage of development would have similar
preferences. For eg:
1. UK and USA have similar infrastructural needs
• Brand names and product reputation plays an importance role. For eg:
1. Toyota and BMW has a strong brand reputation hence the buyer
country willingly imports them.
Criticism of the theory
• Difficult to find similar markets
• Applies only to differentiated manufactured goods
• Ignores opportunities in developing countries
• Narrow scope