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Intra-Industry Trade and the Single Market: Quality Matters

Author

Listed:
  • Fontagné, Lionel
  • Freudenberg, Michael
  • Péridy, Nicolas

Abstract

Analysing data on values and unit values of bilateral trade flows at a very detailed level (some 10,000 product items), we examine the nature of intra-EC trade over the period 1980-94, identify its general determinants and then estimate the specific impact of the Single European Market programme. Trade patterns are identified by breaking up total trade into three trade types: one-way (i.e. inter-'industry') trade, two-way (i.e. intra-'industry') trade in horizontally differentiated products, and two-way trade in vertically differentiated products. One of the main findings is that the observed increase in intra-'industry' trade in Europe is almost entirely due to two-way trade in vertical differentiation: thus, the 1980-94 period is characterized by a increasing specialization of countries along ranges of qualities within products, suggesting a 'qualitatively' division of labour in Europe. General determinants as well as direct and indirect effects of the single market in this evolution are assessed with an econometric model integrating country, industry and integration variables. We conclude that the first years of the Single market have neither validated the optimistic scenario entailed in ex-ante studies, nor led to a more pronounced inter-industry specialization of European members potentially associated with cohesion costs. Adjustments have taken place within industries, on the quality spectrum.

Suggested Citation

  • Fontagné, Lionel & Freudenberg, Michael & Péridy, Nicolas, 1998. "Intra-Industry Trade and the Single Market: Quality Matters," CEPR Discussion Papers 1959, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1959
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    Citations

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    Cited by:

    1. Giuseppe Celi, 2004. "Quality Differentiation, Vertical Disintegration and The Labour Market Effects of Intra-Industry Trade," CELPE Discussion Papers 86, CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy.
    2. Lionel Fontagné & Michael Freudenberg & Guillaume Gaulier, 2005. "Disentangling Horizontal and Vertical Intra-Industry Trade," Working Papers 2005-10, CEPII research center.
    3. N. Antonakakis & G. Tondl, 2014. "Does integration and economic policy coordination promote business cycle synchronization in the EU?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(3), pages 541-575, August.
    4. Simon J. Evenett & Wolfgang Keller, 2002. "On Theories Explaining the Success of the Gravity Equation," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 281-316, April.
    5. Bowdler, Christopher & Jansen, Eilev S., 2004. "A markup model of inflation for the euro area," Working Paper Series 306, European Central Bank.
    6. Picard, Pierre M. & Okubo, Toshihiro, 2012. "Firms' locations under demand heterogeneity," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 961-974.
    7. José Luis Moraga Gonzales & Jean-Marie Viaene, 2001. "Procompetitive Trade Policies," CESifo Working Paper Series 597, CESifo Group Munich.
    8. Sébastien Dupuch & Hugues Jennequin & El Mouhoub Mouhoud, 2004. "EU enlargement: what does it change for the European economic geography?," Revue de l'OFCE, Presses de Sciences-Po, vol. 91(5), pages 241-274.
    9. Manasse, Paolo & Stanca, Luca & Turrini, Alessandro, 2004. "Wage premia and skill upgrading in Italy: why didn't the hound bark?," Labour Economics, Elsevier, vol. 11(1), pages 59-83, February.
    10. Joakim Gullstrand, 2001. "Demand patterns and vertical intra-industry trade with special reference to North-South trade," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 11(4), pages 429-455.
    11. AZHAR, Abdul K.M. & Elliott, Robert J.R. & Liu, Junting, 2008. "On the measurement of product quality in intra-industry trade: An empirical test for China," China Economic Review, Elsevier, vol. 19(2), pages 336-344, June.
    12. Hjerppe, Reino & Voipio, Iikko & Mäkelä, Pekka, 1998. "Finland as a Member of European Union - First Experiences," Discussion Papers 180, VATT Institute for Economic Research.
    13. Lionel Fontagné & Guillaume Gaulier & Soledad Zignago, 2008. "Specialization across varieties and North-South competition," Economic Policy, CEPR;CES;MSH, vol. 23, pages 51-91, January.
    14. Elisabeth Kutschka, 2011. "Quality Upgrading, Skill Demand and International Trade: The Case of German Manufacturing," FEMM Working Papers 110022, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    15. Imbriani, Cesare & Morone, Piergiuseppe & Testa, Giuseppina, 2008. "Exporting quality: is it the right strategy for the Italian manufacturing sector?," MPRA Paper 13327, University Library of Munich, Germany.
    16. Giuseppe Celi & Alasdair Smith, 1999. "Quality Differentiation and the Labour Market Effects of International Trade," CELPE Discussion Papers 50, CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy.
    17. Anna Maria Ferragina, 2000. "Price versus quality competition in Italys trade with central and eastern Europe aver the transition," Departmental Working Papers of Economics - University 'Roma Tre' 0015, Department of Economics - University Roma Tre.

    More about this item

    Keywords

    European Integration; Intra-Industry Trade; Product Differentiation; unit values;

    JEL classification:

    • F1 - International Economics - - Trade

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