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How Reliable are Intra-Industry Trade Measures as Indicators of Adjustment Costs?

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Author Info
Jayant Menon

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Abstract

A number of recent papers have examined measures of intra-industry trade (IIT) and related indicators such as matched and unmatched changes in trade (MCIT and UCIT) as indicators of adjustment costs associated with trade expansion or contraction. We make three contributions to this literature. First, we clarify what is meant by adjustment costs in the context of these IIT-related measures. Second, we present new measures of MCIT and UCIT. Third, we compare our measures with existing measures using some simple numerical examples and data on Irish chemicals trade. We find that previous IIT-related measures tend to overestimate the extent of MCIT, and underestimate UCIT. We also find that the extent of the bias in these measures can be substantial. Thus, they are unreliable as indicators of adjustment costs. Our measures overcome these limitations.

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File URL: http://www.monash.edu.au/policy/ftp/workpapr/g-119.pdf
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Paper provided by Monash University, Centre of Policy Studies/IMPACT Centre in its series Centre of Policy Studies/IMPACT Centre Working Papers with number g-119.

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Date of creation: Mar 1996
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Handle: RePEc:cop:wpaper:g-119

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Related research
Keywords: intra-industry trade; matched changes in trade; adjustment costs;

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Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

References listed on IDEAS
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  1. Jayant Menon & Peter B. Dixon,, . "Regional Trading Agreements and Intra-Industry Trade," Discussion Papers 95/14, University of Nottingham, CREDIT.
  2. Jayant Menon & Peter Dixon, 1996. "How important is intra-industry trade in trade growth?," Open Economies Review, Springer, vol. 7(2), pages 161-175, April. [Downloadable!] (restricted)
  3. Marius Brülhart, 1994. "Marginal intra-industry trade: Measurement and relevance for the pattern of industrial adjustment," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(3), pages 600-613, September. [Downloadable!] (restricted)
  4. Peter B. Dixon & Jayant Menon,, . "Measures of Intra-Industry Trade as Indicators of Factor Market Disruption," Discussion Papers 95/15, University of Nottingham, CREDIT.
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  5. Greenaway, David & Milner, Chris R, 1983. "On the Measurement of Intra-Industry Trade," Economic Journal, Royal Economic Society, vol. 93(372), pages 900-908, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jorge Selaive, 1998. "Comercio Intraindustrial en Chile," Working Papers Central Bank of Chile 44, Central Bank of Chile. [Downloadable!]
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