Porter's diamond model

Also called: Porter's diamond · Topic: International Trade Policy, WTO and Intellectual Property · NCERT: Beyond NCERT

Meaning

Porter's diamond model is Michael Porter's framework (1990) for explaining why some nations become competitive in particular industries. It names four linked determinants:

1. factor conditions (skilled labour, infrastructure);
2. demand conditions (demanding home buyers);
3. related and supporting industries (clusters);
4. firm strategy, structure and rivalry.

Government and chance act on all four. The model's message is that advantage is created, not inherited.

Example

Applied to a city's IT cluster: skilled engineers are the factor conditions and demanding clients are the demand conditions. Nearby suppliers and training institutes are the related industries, and fierce rivalry between firms completes the diamond. Together they push firms to keep improving.

Don't confuse with

• Heckscher-Ohlin theory: this says trade follows given factor endowments. Porter's diamond says the strengths behind trade can be built.

Related concepts

• Absolute advantage
• Comparative advantage
• Gains from trade
• Autarky
• Heckscher-Ohlin theory
• Stolper-Samuelson theorem
• Leontief paradox
• Intra-industry trade
• New trade theory
• Gravity model of trade

Read more

• Why nations trade: from absolute advantage to new trade theory