Intra-industry Trade and Industry Distribution of Productivity: A Cournot-Ricardo Approach
AbstractThis paper constructs a Cournot-Ricardo model of trade by incorporating Cournot competition in a Ricardian trade model. In this model, the share of intra-industry trade in bilateral trade volume decreases as trading partners become more different in terms of the industry distribution of labor productivity. We show that this relationship is a special case of a more general relationship: the share of intraindustry is decreasing in a specialization index. This specialization index turns out to be equal to the difference in the industry distribution of productivity in the case of our Cournot-Ricardo model, while it is given by the difference in capital-labor in the well-known case of monopolistic competition. As both technologies and factor endowments would be important in shaping specialization patterns in the real world, we conjecture that the share of intra-industry trade is decreasing in two measures of specialization: the difference in the industry distribution of productivity and the difference in capital-ratio. Our OLS estimations strongly support this conjecture. In fixed effects regressions, both measures lose significance in the entire sample, but the industry distribution of productivity is significant in explaining trade between high income countries.
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Bibliographic InfoPaper provided by Research Institute for Market Economy, Sogang University in its series Working Papers with number 1120.
Length: 29 pages
Date of creation: Feb 2011
Date of revision:
Intra-industry trade; specialization; Cournot; labor productivity; industry distribution;
Other versions of this item:
- E. Young Song & Chan‐Hyun Sohn, 2012. "Intra‐industry Trade and Industry Distribution of Productivity: A Cournot–Ricardo Approach," The World Economy, Wiley Blackwell, vol. 35(4), pages 461-482, 04.
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
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.:
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- E. Yong Song & Chen Zhao, 2012. "Does Specialization Matter for Trade Imbalance at Industry Level?," Working Papers 1210, Research Institute for Market Economy, Sogang University.
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