New Foreign Trade Theories

Many structural changes have occurred in the areas of rising returns, imperfect competition, specialization, product differentiation, industry-internal trade, technological factor, and innovation in international trade marketplaces.

Foreign trade, historic foreign trade, and traditional foreign trade have all changed as a result of these developments. It's difficult to explain using trade ideas anymore. As a result, after 1960, new foreign trade theories were proposed. (Doru 2013, p. 4-5).

The “new” foreign trade literature has contributed assumptions and procedures to the model that can theoretically describe the current scenario (Entürk, 2007:48). The causes for a country's international trade can be stated as follows, according to the assumptions of modern foreign trade theories.

*Skilled Labor Theory

According to Donald B. Keesing (1966) and Kenen (1965), the rationale for international commerce between industrialized nations is labor force disparities between countries (Dviren, 2004). A country with a skilled workforce specializes in commodities whose production is dependent on this component, and it trades these goods extensively (Dura, 2009:13).

Skilled labor theory is essentially a modified form of factor endowment theory, thus the name "Neo-Factor Endowment Theory." When we consider this from the perspective of history, it is typically found in countries with a subpar workforce.

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It can be noticed that basic agricultural production is being carried out. Industrial items with high added value, on the other hand, are produced in wealthy nations with a skilled labor force (Yüksel and Sardoan, 2011: 201).

*Technology Gap Theory

According to Posner's 1961 technology gap hypothesis, new commodities and manufacturing methods account for the majority of trade between developed countries. This term relates to the development of a new product in one nation and the copying of that product by other countries over a period of time known as "the diffusion phase of innovation." This approach contends that corporations use legal tools such as patents, intellectual property, and industrial property to hide their production processes or prohibit other companies from obtaining production-related information (Bağcı, 2013: 17).

According to the theory, nations that discover a new production or production technique are exporters until other countries replicate the new production or technology. When the undeveloped nation imitates the product and the low labor cost is factored in, the products will be manufactured at a lower cost than the industrialized country that originated the goods, and the goods will be exported. The competitive advantage is therefore passed to the copying country. According to this approach, known as the technology gap hypothesis, continual innovation is required in order to export continuously (Doru, 2013: 15).

*Product Periods Theory

In a similar fashion to technological openness theory, Raymond Vernon (1966) developed this hypothesis to explain the link between export and innovation.

However, rather than comparing cost disparities, the method focuses on the timing of innovation, a lack of knowledge and uncertainty, and the influence of economies of scale on international commerce.

With the aid of the first and following phases, the theory explains the creation of new goods in industrial nations with high levels of skilled labor and R&D expenditures in foreign commerce (Perçin, Karakaya, and Aazade, 2015:717).

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Vernon believes that the idea may be broken down into three parts. The product is created in-country in the first stage and is constantly monitored and improved.

Because the product is controlled, it is still manufactured in the nation where it was created, even if it is marketed to other countries.

The product will mature in the second stage, international sellers will rise, and the firm will build a market connection in terms of meeting foreign demand. It will then be realized that a portion of the product may be manufactured outside the country at a lower cost. When it comes to the final stage, the control and renewal procedures are disrupted, and the inventor country is forced to import the product despite the fact that the entire product may be manufactured cheaply in other countries (Bayraktutan, 2003: 181).

*Similarity Theory in Preferences

Staffon Burenstam Linder proposed the hypothesis in 1961. In fact, Linder was one of the first economists to consider demand in international commerce. The supply factor hypothesis has been superseded by Linder's theory. In its most basic form, the operating mechanism can be described as follows: Industrial product trade is concentrated among nations with comparable levels of wealth and preferences (Atik, 2006:34).

Demand is attributed to trade-in inhomogeneous industrial items, according to the hypothesis. In industrial nations with similar economic levels, taste and preferences will boost foreign commercial connections. In reality, companies that produce products and services for their own local market may be able to export to nations with similar market systems (Ghoreyshi, 2014:13). Linder's idea, however, has garnered little attention outside of Sweden, where he was born. The reason for this is because, despite the fact that a product has no place in the local market, he was unable to explain the trade since there are so many items manufactured for export.

*Economies of Scale Theory

This hypothesis was first proposed in the late 1970s. This hypothesis arose. The rationale for the exclusion is that the rising return to scale in international commerce contradicts the conventional perfectly competitive market fundamental assumptions

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(Kundak, 2015:32). Natural monopolies occur when the price of an item in the home market is lower than the global price.

This theory also contradicts factor endowment theory's premise of constant yield circumstances. Even if the nations are identical in every way, economies of scale suggest that international commerce can be lucrative if wealth rises. To put it another way, economies of scale lead to international trade (Tombak, 2010:11).

Internal and external economies of scale can be distinguished. An internal economy of scale occurs when a company's average cost drops as its manufacturing scale grows. However, it is presumed that there is an external scale economy if production costs fall as production scale grows in the sector to which the same business belongs (Doru, 2013: 17).

Ones that create less-demanded items in their home market instead venture out and buy more-demanded products from foreign countries. As a result, expenses are lowered, and successful international commerce is assured among nations with similar consumption and preferences.

*Monopolistic Competition Theory

Independent research by Spancer (1976), Dixit and Stionkizs (1977), and Lancaster (1978) all contributed to the development of this hypothesis (1978).

Foreign commerce, economies of scale, and product differentiation are all described in monopolistic competition theory. Using economies of scale does not imply having a large number of businesses, items, or production theories, but rather driving a small number of things into production. The strong substitution impacts of differentiated commodities, as well as cost-cutting initiatives, are to blame for this scenario. As a result, specialization will emerge. As a country develops its expertise, it becomes an exporter and importer of various products. A monopolistic market is formed when a large number of companies produce differentiated commodities that are distinct from one another (Ünsal, 2005:234).

In a monopolistic market, increased international commerce, demand flexibility, and product diversity expand the production scale. By lowering costs and raising prices, economies of scale improve wellbeing (Akkoyunlu, 1996:82). Indeed, monopolistic

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competition theory indicates that two-way trade between industrialized nations with identical factor endowments is explained.

*Oligopoly Competition Theory

The strategic effects of oligopolistic competition, as proposed by Krugman and Brander (1983), are referenced in the oligopolistic competition theory.

"Cyclical change" refers to the attitude and foresight that a competitor of any company will adopt against individual conduct. When determining the decision variable in this competition, the analysts used the Bernard or Cournot method(Özer, 2007:72).

The price is the strategic choice variable in the Bernard method, whereas the volume of production is the decision variable in the Cournot approach. In the Bernard model, the company assumes the pricing of its competitors while determining the price level that optimizes profits. While companies decide on the quantity of production that optimizes their profits in the Cournot model, they use the output of their competitors as data. In terms of businesses, the Bernard model is more plausible. However, because the Cournot model's conclusions are more realistic, Cournot is employed in the oligopoly foreign trade model (Akkoyunlu, 1996: 87).

The difference in the elasticity of demand curves they experience at home and abroad, according to Brander and Krugman, is the major reason why businesses export using the Cournot model. The reason for this is that the domestic market's shares in the domestic market are higher than the domestic market's shares, and they are linking. The higher marginal revenue explains the higher demand elasticity.

Because of the disparity in demand, firms' discounting strategies result in two-way trading of the aforementioned items (Krugman and Brander, 1983: 317).