It is a fact that Porter (1990) never focused primarily on the factors determining the pattern of trade, yet his theory of national competitive advantage does explain why a particular country is more competitive in a particular industry. If, for example, Italy maintains competitive advantage in the production of ceramic tiles and Switzerland possesses the competitive advantage in watches, it can be interpreted that the former will export ceramic tiles and the latter will export watches and both of them will import goods in which their own industry is not competitive.
Why is this there a difference? Porter explains that there are four factors responsible for such diversity.… Read the rest