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A Systematic Decomposition of World Trade into Horizontal and Vertical IIT

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  • Lionel Fontagné

    () (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique)

  • Michael Freudenberg

    (ITC (UNCTAD-WTO) - International Trade Center - WTO - UNCTAD)

  • Guillaume Gaulier

    (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique)

Abstract

We provide a systematic decomposition of world trade using harmonized bilateral flows at the most available detail (some 5,000 product categories), into three trade types: inter-industry, intra-industry in horizontally and in vertically differentiated products. The analysis is diachronic and considers country pairs such as France-Germany, United States-China, Malaysia-Singapore, or India-Nigeria. We show that the increase in IIT at the world level is due to two-way trade of vertically differentiated products. We find France and Germany having the highest share of IIT in their bilateral trade among all country pairs in the world. In value terms, the most important bilateral IIT is between the United States and Canada. Recently, specialization according to the classical theories of international trade (inter-industry trade), has recovered, due to the increasing participation of emerging economies in world trade.

Suggested Citation

  • Lionel Fontagné & Michael Freudenberg & Guillaume Gaulier, 2006. "A Systematic Decomposition of World Trade into Horizontal and Vertical IIT," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00270504, HAL.
  • Handle: RePEc:hal:cesptp:hal-00270504
    DOI: 10.1007/s10290-006-0076-6
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00270504
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    References listed on IDEAS

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    1. Gabszewicz, J. & Turrini, A., 2000. "Workers' skills, product quality and industry equilibrium," International Journal of Industrial Organization, Elsevier, vol. 18(4), pages 575-593, May.
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    5. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
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    7. Falvey, Rodney E., 1981. "Commercial policy and intra-industry trade," Journal of International Economics, Elsevier, vol. 11(4), pages 495-511, November.
    8. Ecochard, Pierre & Fontagné, Lionel & Gaulier, Guillaume & Zignago, Soledad, 2005. "Intra-industry trade and regional integration," MPRA Paper 44182, University Library of Munich, Germany.
    9. Lancaster, Kelvin, 1980. "Intra-industry trade under perfect monopolistic competition," Journal of International Economics, Elsevier, vol. 10(2), pages 151-175, May.
    10. Finger, J M, 1975. "Trade Overlap and Intra-Industry Trade," Economic Inquiry, Western Economic Association International, vol. 13(4), pages 581-589, December.
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    Keywords

    Intra-industry trade; international trade;

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