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Equivalence between Increasing Returns and Comparative Advantage as the Determinants of Intra-industry Trade: An Industry Analysis for Korea

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  • Lee, Honggue

    (Konkuk University)

Abstract

A two-part model is estimated to see if increasing returns and comparative advantage are empirically equivalent in explaining intra-industry trade. The model has separate mechanisms for determining the occurrence and the extent of intra-industry trade. Estimation is based on an augmented Grubel-Lloyd index derived from the data set on SITC 7 goods at the 3-digit SITC (Revision 4) for country pairs in which Korea is fixed as a source country. Estimation results show that both increasing returns and comparative advantage can explain the occurrence and the extent of intra-industry trade.

Suggested Citation

  • Lee, Honggue, 2018. "Equivalence between Increasing Returns and Comparative Advantage as the Determinants of Intra-industry Trade: An Industry Analysis for Korea," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 22(1), pages 75-114, March.
    • Handle: RePEc:ris:eaerev:0339
    DOI: 10.11644/KIEP.EAER.2018.22.1.339
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    Keywords

    Grubel-Lloyd Index; Increasing Returns; Comparative Advantage; Intra-industry Trade; Trade Costs; Export Margins; Two-part Model;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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