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Endowment Differences and the Composition of Intra-Industry Trade

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  • Manuel Cabral
  • Rod Falvey
  • Chris Milner

Abstract

This paper investigates the relationship between differences in endowments and different types of trade, in particular vertical intra-industry trade (VIIT). We build a general equilibrium framework based on a hybrid of the Chamberlain-Heckscher-Ohlin and the specific factors models that generates predictions about how the shares of different types of intra-industry and net trade flows change with differences in endowments. We also present some empirical evidence for European Union trade with its 51 major trading partners. The econometric models of the determinants of the different types of trade confirm the theoretical predictions, namely that the effect of cross country differences in the endowments of trading partners on the share of vertical IIT in total bilateral trade differs from their effect on both horizontal IIT and net trade. The share of horizontal IIT (net trade) decreases (increases) for all increases in absolute endowment differences, but the share of vertical IIT can both increase and decrease with increases in endowment differences.

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File URL: http://www.nottingham.ac.uk/gep/documents/papers/2008/08-36.pdf
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Bibliographic Info

Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 08/36.

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Handle: RePEc:not:notgep:08/36

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Keywords: Intra-industry trade; factor endowments;

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References

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  1. Fukao, Kyoji & Ishido, Hikari & Ito, Keiko, 2003. "Vertical Intra-Industry Trade and Foreign Direct Investment in East Asia," Discussion Paper Series a434, Institute of Economic Research, Hitotsubashi University.
  2. Jørgen Nielsen & Teit Lüthje, 2002. "Tests of the empirical classification of horizontal and vertical intra-industry trade," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 138(4), pages 587-604, December.
  3. Greenaway, David & Milner, Chris & Elliott, Robert J R, 1999. " UK Intra-industry Trade with the EU North and South," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(3), pages 365-84, August.
  4. Davis, Donald R., 1995. "Intra-industry trade: A Heckscher-Ohlin-Ricardo approach," Journal of International Economics, Elsevier, vol. 39(3-4), pages 201-226, November.
  5. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
  6. Hummels, D. & Levinsohn, J., 1993. "Monopolistic Competition and International Trade: Reconsidering the Evidence," Working Papers 339, Research Seminar in International Economics, University of Michigan.
  7. Manuel Cabral & Rod E. Falvey & Chris R. Milner, 2006. "The Skill Content of Inter- and Intra-Industry Trade: Evidence for the United Kingdom," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 142(3), pages 546-566, October.
  8. Joan Martín-Montaner & Vicente Ríos, 2002. "Vertical specialization and intra-industry trade: The role of factor endowments," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 138(2), pages 340-365, June.
  9. Nuno Crespo & Maria Paula Fontoura, 2001. "Determinants of the pattern of horizontal and vertical intra-industry trade: what can we learn from Portuguese data?," Working Papers Department of Economics 2001/09, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  10. Hubert Gabrisch & Maria Luigia Segnana, 2002. "Intra-industry trade between European Union and Transition Economies. Does income distribution matter?," IWH Discussion Papers 155, Halle Institute for Economic Research.
  11. José Blanes & Carmela Martín, 2000. "The nature and causes of intra-industry trade: Back to the comparative advantage explanation? The case of Spain," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(3), pages 423-441, 09.
  12. Falvey, Rodney E., 1981. "Commercial policy and intra-industry trade," Journal of International Economics, Elsevier, vol. 11(4), pages 495-511, November.
  13. David Greenaway & Robert Hine & Chris Milner, 1994. "Country-specific factors and the pattern of horizontal and vertical intra-industry trade in the UK," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(1), pages 77-100, March.
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