Which modern trade theory involves government intervention in specific industries to enhance international success?

Strategic Trade Theory is a concept in international economics that supports the idea that government intervention can play a crucial role in enhancing a country’s international competitiveness in specific industries. This theory posits that under certain market conditions, particularly in industries characterized by economies of scale and imperfect competition, a government can help domestic firms gain a competitive edge over foreign rivals. Through means such as subsidies, tariffs, and government-backed research and development, countries can create a favorable environment for their local industries to thrive on a global scale.

This approach contrasts sharply with traditional trade theories, which often assume free markets without government influence. For example, Factor Endowment Theory focuses on the idea that a country will export goods that utilize its abundant factors of production, while Comparative Advantage emphasizes efficiency and opportunity costs in producing tradeable goods without advocating for intervention. Similarly, Absolute Advantage looks at the ability of a country to produce goods more efficiently than others, but it does not incorporate the concept of governmental aid or intervention. Thus, Strategic Trade Theory is distinct in its assertion that active government involvement can lead to enhanced international success in certain sectors, making it the correct answer to the question posed.