Intra-industry trade in the wine sector in the enlarged European Union

Abstract

International trade theory suggests that advanced trade integration may lead to a higher level of intra-industry trade. The enlargement of the European Union (EU) during the last decade is a good example to analyse the intra-industry trade in wine products. The aim of the paper is to analyse the pattern and drivers of horizontal intra-industry trade in the wine sector within the EU between 2000 and 2011. We employ an empirical strategy developed by Cieślik (2005) to test Helpman and Krugman (1985) model. We find a growing trend in intra-industry trade with dominance of vertical intra-industry trade. Estimations suggest that Belgium, France, the Netherlands and Germany report the highest level of intra-industry trade within the EU. The level of intra-industry trade is highest among old member states. Empirical evidence indicates that the standard intra-industry theory finds some support in our data when we control for the sum of capital to labour ratios in the estimated equations instead of relative country-size variables. We find that the EU enlargement positively influences total and vertical intra-industry trade while it has negative impacts on horizontal intra-industry trade. Distance has negative effects on all types of intra-industry trade.