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

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  • Jayant Menon

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.

Suggested Citation

  • Jayant Menon, 1996. "How Reliable are Intra-Industry Trade Measures as Indicators of Adjustment Costs?," Centre of Policy Studies/IMPACT Centre Working Papers g-119, Victoria University, Centre of Policy Studies/IMPACT Centre.
    • Handle: RePEc:cop:wpaper:g-119
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    References listed on IDEAS

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    1. Peter B. Dixon & Jayant Menon, 1997. "Measures of Intra‐Industry Trade as Indicators of Factor Market Disruption," The Economic Record, The Economic Society of Australia, vol. 73(222), pages 233-247, September.
    2. Clive Hamilton & Paul Kniest, 1991. "Trade liberalisation, structural adjustment and intra-industry trade: A note," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 127(2), pages 356-367, June.
    3. Marius Brülhart, 1994. "Marginal intra-industry trade: Measurement and relevance for the pattern of industrial adjustment," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 130(3), pages 600-613, September.
    4. 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.
    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.
    6. Jayant Menon & Peter B. Dixon,, "undated". "Regional Trading Agreements and Intra-Industry Trade," Discussion Papers 95/14, University of Nottingham, CREDIT.
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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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