The Rise of Indian Software Industry
Which of the above theories, comparative advantage, Hecksher-Ohlin, or Porter's - gives the best explanation of the rise of the Indian software industry? Why?
The three theories build upon each other.
Comparative advantage identifies software as a product where India is an efficient producer and exports it to the country where is less efficiently produced. Comparative advantage says that international trade happens when there are differences in the price of production. This theory clearly satisfies and contributes a major portion in the rise of Indian software industry and more on the global economy. But it does not focus more on the factor endowments among countries, which happens to be the backbone for this efficiency and therefore in the rise of Indian software industry.
Hecksher-Ohlin shows that a particular factor of production is responsible for this efficiency. The Heckscher-Ohlin theory predicts that countries will export those goods that make intensive use of factors that are locally abundant, while importing goods that make intensive use of factors are locally scarce.
I would say that this theory clearly explains the rise of the Indian software industry, because without efficient factor endowments a comparative advantage cannot be taken.
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