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Determinants of intra-industry trade between East and West Europe

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  • Aturupane, Chonira
  • Djankov, Simeon
  • Hoekman, Bernard

Abstract

Intra-industry trade as a share of total tradebetween Central and Eastern European nations and the European Union (EU) is among the highest of all the EU's bilateral trade flows. The authors break down data on these trade flows into horizontal and vertical components, and investigate the determinants of each. They find that vertical intra-industry trade (the exchange of similar goods of different quality) accounts for 80 to 90 percent of total intra-industry trade. It is positively associated with product differentiation, labor intensity of production, economies of scale, and foreign direct investment. Controlling for country effects, they find a statistically significant positive association between horizontal intra-industry trade (the exchange of close substitutes of similar quality) and foreign direct investment, product differentiation, and industry concentration. They find a significant negative relationship for economies of scale and labor intensity. These results do not hold if they do not control for country effects, suggesting that country-specific factors are key determinants of horizontal intra-industry trade.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1850.

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Date of creation: 30 Nov 1997
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Handle: RePEc:wbk:wbrwps:1850

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Keywords: Public Health Promotion; Economic Theory&Research; Environmental Economics&Policies; Water and Industry; Payment Systems&Infrastructure; Environmental Economics&Policies; Economic Theory&Research; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Inequality; Water and Industry;

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  1. Damien NEVEN, 1994. "Trade Liberalisation with Eastern Nations. How Sensitive ?," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9407, Université de Lausanne, Faculté des HEC, DEEP.
  2. repec:fth:michin:382 is not listed on IDEAS
  3. Alan Deardorff, 1998. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Chapters, in: The Regionalization of the World Economy, pages 7-32 National Bureau of Economic Research, Inc.
  4. Markusen, James R. & Venables, Anthony J., 2000. "The theory of endowment, intra-industry and multi-national trade," Journal of International Economics, Elsevier, vol. 52(2), pages 209-234, December.
  5. Lancaster, Kelvin, 1980. "Intra-industry trade under perfect monopolistic competition," Journal of International Economics, Elsevier, vol. 10(2), pages 151-175, May.
  6. Lionel Fontagné & Michaël Freudenberg & Nicolas Peridy, 1997. "Trade Patterns Inside the Single Market," Working Papers 1997-07, CEPII research center.
  7. Bergstrand, Jeffrey H, 1990. "The Heckscher-Ohlin-Samuelson Model, the Linder Hypothesis and the Determinants of Bilateral Intra-industry Trade," Economic Journal, Royal Economic Society, vol. 100(403), pages 1216-29, December.
  8. Edward E. Leamer, 1992. "Testing Trade Theory," NBER Working Papers 3957, National Bureau of Economic Research, Inc.
  9. Balassa, Bela & Bauwens, Luc, 1987. "Intra-industry Specialisation in a Multi-country and Multi-industry Framework," Economic Journal, Royal Economic Society, vol. 97(388), pages 923-39, December.
  10. Greenaway, David & Hine, Robert C & Milner, Chris, 1995. "Vertical and Horizontal Intra-industry Trade: A Cross Industry Analysis for the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(433), pages 1505-18, November.
  11. David Greenaway & Chris Milner & Robert Elliott,, . "UK Intra-Industry Trade with EU North and South: A Multi-Country and Multi-Industry Analysis," Discussion Papers 96/9, University of Nottingham, CREDIT.
  12. Harrigan, James, 1995. "The Volume of Trade in Differentiated Intermediate Goods: Theory and Evidence," The Review of Economics and Statistics, MIT Press, vol. 77(2), pages 283-93, May.
  13. Krugman, Paul R, 1981. "Intraindustry Specialization and the Gains from Trade," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 959-73, October.
  14. Falvey, Rodney E., 1981. "Commercial policy and intra-industry trade," Journal of International Economics, Elsevier, vol. 11(4), pages 495-511, November.
  15. Deardoff, A.V., 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," Working Papers 382, Research Seminar in International Economics, University of Michigan.
  16. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
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