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Intra-industry Trade and Industry Distribution of Productivity: A Cournot-Ricardo Approach

Author

Listed:
  • E. Young Song

    () (Department of Economics, Sogang University)

  • Chan-Hyun Sohn

    () (Department of International Trade and Business, Kangwon National University)

Abstract

This paper constructs a Cournot-Ricardo model of trade by incorporating Cournot competition in a Ricardian trade model. In this model, the share of intra-industry trade in bilateral trade volume decreases as trading partners become more different in terms of the industry distribution of labor productivity. We show that this relationship is a special case of a more general relationship: the share of intraindustry is decreasing in a specialization index. This specialization index turns out to be equal to the difference in the industry distribution of productivity in the case of our Cournot-Ricardo model, while it is given by the difference in capital-labor in the well-known case of monopolistic competition. As both technologies and factor endowments would be important in shaping specialization patterns in the real world, we conjecture that the share of intra-industry trade is decreasing in two measures of specialization: the difference in the industry distribution of productivity and the difference in capital-ratio. Our OLS estimations strongly support this conjecture. In fixed effects regressions, both measures lose significance in the entire sample, but the industry distribution of productivity is significant in explaining trade between high income countries.

Suggested Citation

  • E. Young Song & Chan-Hyun Sohn, 2011. "Intra-industry Trade and Industry Distribution of Productivity: A Cournot-Ricardo Approach," Working Papers 1120, Research Institute for Market Economy, Sogang University.
  • Handle: RePEc:sgo:wpaper:1120
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    References listed on IDEAS

    as
    1. Bernhofen, Daniel M., 1999. "Intra-industry trade and strategic interaction: Theory and evidence," Journal of International Economics, Elsevier, vol. 47(1), pages 225-244, February.
    2. Nicita, Alessandro & Olarreaga, Marcelo, 2001. "Trade and production, 1976-99," Policy Research Working Paper Series 2701, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Regolo, Julie, 2013. "Export diversification: How much does the choice of the trading partner matter?," Journal of International Economics, Elsevier, vol. 91(2), pages 329-342.
    2. Julie Regolo, 2013. "Export Diversification: How Much Does the Choice of the Trading Partner Matter?," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 13072, Institut d'Economie et Econométrie, Université de Genève.
    3. Song, E. Young & Zhao , Chen, 2012. "Does Specialization Matter for Trade Imbalance at Industry Level?," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 16(3), pages 227-247, September.

    More about this item

    Keywords

    Intra-industry trade; specialization; Cournot; labor productivity; industry distribution;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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