Intra‐Industry Trade and Adjustment Costs in the Australian Textile, Clothing and Footwear and Motor Vehicle Industries: A Comparative Case Study Approach*

Abstract

Australian studies have focused on different dimensions of intra industry trade (IIT) between the manufacturing sector and the rest of the world at the disaggregated level, i.e. 1, 2, 3, 4 or 5 digit levels. The current study seeks to complement the existing literature by examining the IIT and hence output and employment performance of two different digit industries in the form of the textile, clothing and footwear (TCF) (2 digit) and motor vehicle (4 digit) industries because they are characterized by different factor intensity in production. Specifically, the former is fundamentally labour intensive whilst the latter is capital intensive in production. The central results reveal that the motor vehicle industry has exhibited a superior IIT and hence output and employment performance as compared to the TCF industry, as well as the manufacturing sector. The sophisticated capital goods produced and the capital intensive nature of motor vehicle production have made it possible to derive the cost benefits of large scale production which in turn has led to stronger export penetration. Moreover, the industry specific assistance measures which have been biased towards tax incentives for investment and R&D expenditure have favoured the motor vehicle industry's production and exports at the expense of the TCF industry, thereby reinforcing the former industry's stronger IIT and hence output and employment performance.