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Intra-industry trade

  • Kwok Tong Soo

This paper develops a many-good, many-country model of international trade which combines Ricardian comparative advantage and increasing returns to scale. It is shown how the gains from trade depend on relative country sizes, trade cost, and the technological similarity between countries. Trade consists of both inter- and intra-industry trade. The trade-weighted Grubel-Lloyd index of intra-industry trade is positively related to own country size and the number of exported sectors, and is negatively related to average partner country size, the number of imported sectors, and the trade cost. The empirical evidence supports most of these predictions, and the model fits the data better for OECD than for non-OECD countries.

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File URL: http://www.lancaster.ac.uk/media/lancaster-university/content-assets/documents/lums/economics/working-papers/Krugman_Ricardo.pdf
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Paper provided by Lancaster University Management School, Economics Department in its series Working Papers with number 33867578.

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Date of creation: 2013
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Handle: RePEc:lan:wpaper:33867578
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  18. Debaere, Peter, 2005. "Monopolistic competition and trade, revisited: testing the model without testing for gravity," Journal of International Economics, Elsevier, vol. 66(1), pages 249-266, May.
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  27. Helpman, Elhanan, 1987. "Imperfect competition and international trade: Evidence from fourteen industrial countries," Journal of the Japanese and International Economies, Elsevier, vol. 1(1), pages 62-81, March.
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