Evolving Pattern of Intra-industry Trade Specialization of the New Member States of the EU: The Case of the Automotive Industry

Abstract

The paper investigates the development of intra-industry trade of the new Member States with major partners between 2000 and 2007. Intra-industry trade is separated into horizontal and vertical components on the basis of differences in unit values. We have found that although inter-industry trade still accounts for almost 50% of the trade of the countries that joined the EU in 2004, its share has been declining to the benefit of intra-industry trade (except for Malta). Intra-industry trade accelerated in the post-accession period and in 2007 Slovenia and the Czech Republic recorded the highest shares. Intra-industry trade of the new Member States has been dominated by the vertical component, usually low-quality goods. However, in almost all new Member States, the share of high-quality vertical intra-industry trade, as well as the horizontal component increased. Thus, the pattern of trade specialization in the new Member States has improved. Growing shares of intra-industry trade, particularly the horizontal component, reflect increasing similarities between new and old Member States and a favourable convergence process between the two groups of countries. In the automotive sector, intra-industry trade is generally larger than in total trade, meaning deeper specialization. This phenomenon can be largely attributed to the high volume of foreign direct investment in the sector.