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Quality Product differentiation in Cee-Eu Intra-Industry Trade

Listed author(s):
  • Anna Maria Ferragina

In this paper we compute price/quality gap indicators to measure vertical intra-iundustry trade (VIIT) in EU markets at 3-digit NACE industry level. These indicators are then used to test some hypotheses relative to the determinants of the quality of trade of Central and Eastern European countries (CEECs). Two underlying models of VIIT are tested: a neo-H-O model (Falvey, 1981; Falvey- Kierzkowski, 1987), based on factor endowment, and an “economic geography” model, based on market size and economic integration (Greenaway-Torstensson, 1997). The explanatory variables (proxies for human capital, physical capital, market size and market integration) affect the dependent variable (unit-value differences) with relevant and significant coefficients. The negative sign for the variable human capital, interacted with the dummy for CEECs, suggests the existence of comparative disadvantages in the high-skill sectors for these countries. Moreover, the lower market size of CEECs could strengthen their disadvantage in high quality segments of production. However, the geographic proximity to the core of Europe and the integration process, which are strongly correlated with high quality trade, could make faster the process of catching up.

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Paper provided by Department of Economics - University Roma Tre in its series Departmental Working Papers of Economics - University 'Roma Tre' with number 0007.

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Length: 57
Date of creation: Dec 1998
Handle: RePEc:rtr:wpaper:0007
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  1. Lionel Fontagné & Michaël Freudenberg, 1997. "Intra-Industry Trade: Methodological Issues Reconsidered," Working Papers 1997-01, CEPII research center.
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