Trade Liberalisation, Closer Economic Relations and Intra‐Industry Specialisation

Much of the growth in trade among the industrialised countries, and more recently among countries in the Asia‐Pacific region, has taken the form of intra‐industry trade (HT). Australia has historically had one of the lowest shares of IIT among OECD countries. This article examines how Australia's IIT has changed in the 1980s in response to the process of trade liberalisation and completion of the Closer Economic Relations (CER) pact with New Zealand. HT indexes are estimated for Australia's multilateral and trans‐Tasman trade for 1981 and 1991 for 132 industries using data at the 3 and 4‐digit level of the Standard International Trade Classification (SITC). The results point to a sharp increase in the share of IIT for both multilateral and trans‐Tasman trade. Industries that have undergone the largest reductions in protection levels have increased their shares of IIT quite considerably. Increased intra‐industry specialisation suggests that the short‐run adjustment costs associated with trade liberalisation are likely to be lower. If IIT continues to grow in response to the ongoing process of internationalisation of the Australian economy, then Australia's prospects for expanding its share of world trade are good.