Vertical Intra-industry Trade Research Articles

Endowment Differences and the Composition of Intra‐Industry Trade

AbstractThe empirical relationship between differences in endowments and different types of trade is investigated in this paper. Although net trade (NT) and vertical intra‐industry trade (IIT) are both broadly viewed as reflecting endowment differences, we suggest that there will be systematic differences in the way their shares of trade adjust as endowment differences become larger. Empirical evidence for European Union trade with its 52 major trading partners confirms this. The share of horizontal IIT (net trade) decreases (increases) for all increases in absolute endowment differences, but the share of vertical IIT can both increase and decrease with increases in endowment differences.

Development of Intra-industry Trade as a Measure of Competitiveness of the Polish Food Sector

This article aims at analysing the significance of the intra-industry trade in the Polish foreign trade in agri-food products and assessment of the competitiveness of the Polish food sector on this basis. The analysis uses, first of all, the index introduced by Grubel and Lloyd (hereinafter referred to as GL index), which is a commonly used indicator of intra-industry trade intensity and one of the measures of international competitiveness. The analysis showed that in the period of Poland’s membership in the European Union the foreign trade in agri-food products noted a significant boost and the competitive position of Polish food producers improved on the international scale. At the same time, the intensity level of intra-industry trade in these products increased considerably. In 2001-2011, the importance of intra-industry trade in the Polish agri-food trade increased by over 14 percentage points. Consequently, in 2011 almost 50% of the trade in agri-food products was intra-industry trade. A predominant part of this exchange was horizontal intra-industry trade, including trade in goods differentiated in respect to a given industry that were relatively highly processed and showed a high level of substitutability between each other. The intra-industry trade in differentiated products of lower level of processing was less intensive. These products included agricultural raw materials and homogeneous products. Moreover, as regards the food sector a quite significant part was played by vertical intra-industry trade, including re-export, i.e. export of finished goods manufactured form raw materials imported from other climate zones. The growing intensity level of intra-industry trade in agri-food products is one of the markers of high competitiveness of the Polish food producers.

The Performances of Italian Vertical Intra-Industry Trade in Cultural vs ICT Goods

We assess if systematic differences arise in Italian vertical intra-industry trade in ICT and cultural products. We study the factors leading to increasing levels of VIIT since vertical two-way trade flows are prevalent and (in opposition to those of the horizontal type) result in complementary rather than competitive production and trading patterns.We decompose Italian bilateral flows in ICT and cultural goods (2000-2009) into three trade types: inter-industry, horizontal and vertical intra-industry trade, then provide a top-10 list of the Italian partners in terms of percentage of VIIT and finally analyze the Italian performances in terms of products relative quality.

The Impact of Immigration on Portuguese Intra-Industry Trade

This paper investigates the relationship between intra-industry trade (IIT) and immigration flows using a gravity model for the period 2000-2010 between Portugal and European Union’s Member States (EU-27). The present study uses the methodology of Kandogan (2003) for separating IIT into its components horizontal (HIIT) and vertical intra-industry trade (VIIT). Using a panel data approach, our study find that immigration has a positive influence on Portuguese intra-industry trade. These results indicate that the immigration can reduce transaction costs between home and host country. We also consider in econometric model, the economic dimension which appears to exercise a positive effect on IIT. Our results confirm the hypothesis that there is a negative effect of transportation costs on trade.

Impact of the ASEAN Economic Community on ASEAN Production Networks

Empirical evidence suggests that the emergence of international production networks in East Asia results from market-driven forces such as vertical specialization and higher production costs in the home countries and institutional-led reasons such as free trade agreements. This paper examines two industries — autos and auto parts, and hard disk drives (HDDs) — to understand international production networks. The study examines the structure of vertical intra-industry trade among East Asian countries, especially members of the Association of Southeast Asian Nations, depicts international production sharing in the selected industries, namely HDD, and automobiles and automotive parts, in the region. The study also points out the importance of the People’s Republic of China and Thailand as assembly bases. It concludes that investment promotion policies contributed more to the emergence of international production networks than free trade agreements.

Vertical Intra-Industry Trade and the EU Accession: The Case of Hungarian Agri-Food Sector

The aim of this paper is to examine the relationship between the factor endowment and the pattern of intra-industry trade. Our empirical analysis relates to Hungary’s intra-industry trade in agri-food products with 26 member states of the EU over the period 1999-2010. Estimations reject the comparative advantage explanation of vertical intra-industry trade and provide partial support the prediction of Flam and Helpman model. Findings highlight that nature of factor endowments play also important role in explanation of vertical intra-industry trade. Other variables like market size and distance confirm the theoretical expectations. In addition, trade with new member states positively, whilst the EU accession ambigouosly influence the share of vertical IIT.

Income Disparity, Vertical Intra-industry Trade, and Welfare in Integration

This paper constructs an intra-industry trade model with vertical product differentiation and considers a free- trade region where two countries of different income levels to investigate the welfare effects of falling trade costs. It shows that the trade patterns are affected by the income disparity of integrated countries. Moreover, this study finds that the impacts of falling trade costs on the welfare of the two countries are asymmetric depending on the relative income disparity. At some levels of income disparity and some stages of economic integration, there may indeed conflict interests between rich and poor countries with respect to continuing the process of market integration. It implies that a fall in trade costs does not always benefit all countries.

Central European countries and the smooth adjustment hypothesis

This paper analyses bilateral trade between the Czech Republic, Poland, and Slovenia as Central European Countries (CEC-3) and the 15 European member states (EU-15). The study briefly presents a modified theory of customs unions; discusses results of the measurement of vertical intra-industry trade between the Czech Republic, Poland and Slovenia in trade with the EU-15; and identifies other important factors that define vertical intra-industry trade between the CEC-3 and EU-15 members. The aim of this paper is to test the smooth adjustment hypothesis (SAH), which predicts that a high level of total intra-industry trade is positively related to low adjustment costs. The traditional theory of customs unions supposes that members of customs unions or other regional trading arrangements have different relative factor endowments, which— under free trade conditions—results in inter-industry specialisation. Consequently costs of adjustments are smaller in the case of more developed member countries and greater in the case of less developed member countries. The modified theory of customs unions predicts that reduced trade barriers within the union will lead countries to intraindustry specialisation, which will have important implications for the short-run costs of adjustment—namely, the costs of adjustment will be smaller for all members of the customs union irrespective of their stage of development. Although the modified version of customs unions theory assumes that the SAH is valid, this paper confirms the view of many other authors that this hypothesis is doubtful.

Export Product Quality between China and Asian Countries

This study aims to measure the export product quality improvement for trade between China and five selected Asian countries namely, India, Malaysia, Thailand, the Philippines and Indonesia using product quality value method of Azhar and Elliott (Rev World Econ 139(3):419–439, 2006). Vertical intra-industry trade high is considered as high quality products. We examined disaggregated four-digit standard international trade classification data, for the period of 2000 to 2008. The results propose that Malaysia has the highest benefits of intra-Industry trade with China while, Philippines and India are in second and third places. Export product quality improvement of Thailand is clearly evident in the second period, where with 87.88 % growth of high quality product can be a prospective partner choice in trading for China. It is worth for China to focus on Thailand as a significant importer on high quality products.

Vertical intra-industry trade and product quality: the case of South Korea, 1996–2003

This paper contributes to empirical research of intra-industry trade, especially vertical intra-industry trade (VIIT), by two aspects. Firstly, we separate VIIT into higher-export-price VIIT and lower-export-price VIIT. Secondly, we give attention to R&D and FDI stock in explaining VIIT determinants. Applied to panel data representing South Korea’s bilateral trade with 15 OECD countries and Taiwan from 1996 through 2003, this alternative makes an intricate understanding of the VIIT determinants possible. Main empirical findings are that South Korea’s R&D investments focus on price competitiveness while its inward FDI seeks efficiency and its outward FDI seeks a market in this period.

Vertical Trade Specialization and the Formation of North-South PTAs

During the last two decades, the number of preferential trade agreements (PTAs) grew almost exponentially to over 270 by 2010. A majority of these are agreements between developed and developing countries. Existing models provide little economic rationale for these agreements, but the existing literature lumps North-South PTAs together with other types of trade pacts. This article offers an explanation focused on the movement of less capital-intensive manufacturing from North to South, which in turn stimulates the exchange of similar goods differentiated by unit value—also referred to as vertical intra-industry trade. The North exports more capitalintensive goods, while more labor-intensive goods are produced and traded by the South. This kind of specialization creates incentives for governments to support PTAs. The author tests this model using a new measure of vertical trade specialization and finds strong evidence that such specialization promotes PTA formation. North-South PTAs should therefore be seen as part of a broader shift of manufacturing from high- to middle-income countries.

Horizontal and Vertical Intra‐industry Trade: An Empirical Test of the ‘Homogeneity Hypothesis’

AbstractIn this paper, we study if and how country‐specific factors affect intra‐industry trade (IIT) when heterogeneity among sectors is allowed for. The paper is novel in that it is the first that addresses an issue raised by Greenaway et al. (Oxford Bulletin of Economics and Statistics, 1999, 61, 365). Specifically, employing data on a sample of OECD countries over a 10‐year period (1997–1998), we build on and take forward a methodology pioneered by Balassa and Bauwens (Economic Journal, 1987, 97, 923) to study the determinants of horizontal and vertical IIT using a multi‐industry approach. In doing this, we seek to avoid the more extreme measurement problems by allowing for heterogeneity among sectors when country‐specific factors are analysed and among countries when industry‐specific factors are considered. The results are compared to those obtained using the traditional method that does not consider intersectoral heterogeneity. We find that the two models yield statistically different results. Moreover, the tests regarding the choice of model – that is, econometric tests designed to compare one model with another when different sets of explanatory variables are used – confirm the relevance of intersectoral heterogeneity in affecting IIT. To the best of our knowledge, a similar analysis has not yet appeared in the empirical literature on IIT.

Measuring Goods Quality in Iran’s Intra- Industry Trade with G-8 Member States

As economic integration in East Asia progresses, trade patterns within region are displaying an ever – greater complexity. Though inter – industry trade still accounts for the majority, its share in overall trade is declining. Instead, intra – industry trade (IIT), which can be further divided into horizontal IIT (HIIT) and vertical IIT (VIIT) is growing in importance. In this paper, we set out and examine different kinds of intra- industry trade between Iran and G-8 member states by comparing the Greenway, Hine and Milner (1994) and Fontagne and Freudenberg (1997) approaches to disentangling vertical and horizontal intra – industry trade. Then we introduce and examine a new index from Azhar and Elliott to define product quality types between Iran and G-8 members for the time of 2001-2009. Result shows that a significant share of Iran’s industry trade with G-8 state members has been assigned to vertical intra – industry trade. With regarded to Azhar and Elliott index, the main share of intra- industry trade consists of low quality goods.

Product Quality, Trade, and Adjustment: The China-ASEAN Experience

There is a fear among East Asian governments that China’s rapid export driven growth is significantly impairing the export performance of their own countries. The common belief among East Asian economies is that to remain competitive they must improve the quality of their exports relative to those of China. In this paper, we show how the emergence of China has affected the quality of its exports and imports to and from Malaysia, Singapore and Indonesia. Specifically, we combine a measure of marginal intra-industry trade (IIT) concerned with the adjustment implications of changes in matched trade, a measure of vertical and horizontal intra-industry trade concerned with the differences in product quality and a new dynamic measure of quality differentiated IIT. Our results suggest that Singapore and Malaysia have managed to maintain and even improve their position as the exporter of high quality varieties in bilateral trade with to China despite China’s rapid development and export orientated growth.

Marginal Intra-Industry Trade and Employment Reallocation: The Case Study of Iran’s Manufacturing Industries

The purpose of this paper is to test the smooth adjustment hypothesis by using panel technique for Iran’s manufacturing industries at the 4-digit aggregation level of ISIC classification, during time period 2001–2006. According to the smooth adjustment hypothesis, intra-industry trade expansion entails lower adjustment costs than inter-industry one. In this paper, by distinguishing marginal intra industry trade to its horizontal and vertical types and employing the total reallocation effect as a proxy of the adjustment cost of reallocation between sectors and occupations, we’ve tested smooth adjustment hypothesis for both marginal intra industry trade and its types. So, comparing with other empirical studies, this paper has used marginal vertical and horizontal intra industry trade as well as marginal intra industry trade to test the hypothesis. The obtained results do not support the hypothesis for marginal intra industry trade. On the other hand, by distinguishing marginal intra industry trade to marginal horizontal and vertical intra-industry trade, this hypothesis is expectedly confirmed. This result is justifiable since marginal horizontal intra industry trade is a change of intra industry trade with the similar factor intensity while marginal vertical intra industry trade is mainly based on the differences in factor endowment.

Determinant factors of vertical intra industry trade in agricultural sector: A study of Iran and her main trading partners

The present study has investigated the country specific determinants of the vertical and total intra-industry trade between Iran and its main trading partners (including 24 countries) in the agricultural products group during the time period 2001–2007. For this purpose, first we have measured the types of the intra-industry trade. Then we have examined the determinants of the vertical and total intra-industry trade in the agricultural sector by using the panel technique. Based on the obtained results, it has confirmed that economic development (both per capita income and HDI) has a positive and significance effect on the Iran’s bilateral intra-industry trade. Also, the results verify the Linder hypothesis. In sum, the Iran’s foreign trade in agricultural sector is mainly based on comparative advantage. Specifically, there is a negative and significant relationship between the revealed comparative advantage and the industry trade. In addition, the endowment of land affects positively the high vertical intra-industry trade. Also according to the results, the size market differences impact the intra-industry trade negatively.  

Resource Structure and Imports: An Analysis of the Relationship between Skill-Intensive Imports and Skill Endowment

Countries generally import those goods which they do not produce, and there is a possibility that this might be due to unavailability of resources needed to produce the goods which the countries import. Hence, countries with lower levels of total skill endowment are supposed to import more skill-intensive goods than countries with higher levels of total skill endowment. However, the presence of vertical and horizontal intra-industry trade makes this picture complex. Using a theoretical model derived on the basis of earlier theories and some empirical investigation on data of 72 countries of 3 years, this article tries to find out whether there is any relation between total skill endowment and imports of a country. The results show that there is indeed a relationship, but the nature of this relationship depends on the effect of total skill endowment on the country's skill-intensive exports as well.

Marginal intra- industry trade and country characteristics

This study examines the marginal intra-industry trade (MIIT) and its components horizontally, and marginal vertical intra-industry trade (MVIIT) applied to the United States. We present an alternative methodology to evaluate marginal intra-industry trade (MIIT) which was presented by Thom and McDowell (1999) and Azhar and Elliot (2008). Using a panel data approach, the results show a negative correlation between endowments and marginal intra-industry trade. These results indicate that marginal intra-industry trade occurs more frequently among countries that have similar demand. Our results also confirm the hypothesis that trade increases if the transportation costs decrease. Key words: Marginal horizontal and vertical intra-industry trade, panel data.

FDI and intra-industry trade: theory and empirical evidence from the Visegrad Countries

This paper analyses impact of the foreign direct investment (FDI) on the intra-industry trade (IIT) patterns in the Visegrad Countries (VCs) (the Czech Republic, Hungary, Poland and Slovakia) in the period 1995–2008. The FDI has been a driving force of these countries’ foreign trade, especially for the IIT. From the theory and previous empirical studies, it results that the FDI has a positive impact on vertical intra-industry trade (VIIT), while the influence of this variable on horizontal intra-industry trade (HIIT) is ambiguous. Using a panel data approach, the determinants of HIIT and VIIT were identified. The obtained results confirmed that the FDI in the VCs stimulated not only VIIT, but also HIIT.

Marginal intra-industry trade and adjustment costs: the case study of Iran s manufacturing industries

According to smooth adjustment hypothesis (SAH), intra-industry trade (IIT) has low adjustment cost compared with inter-industry trade. The purpose of this paper is to examine the hypothesis by using panel technique for Iran’s manufacturing industries during 2002–2006. Comparing with other empirical studies, this paper has used marginal horizontal and vertical IIT as well as marginal intra-industry trade (MIIT) to test SAH. The obtained results do not support the mentioned hypothesis for MIIT. On the other hand, by distinguishing MIIT to marginal horizontal and vertical IIT, this hypothesis is confirmed for the former. This result is justifiable since marginal horizontal IIT is a change of IIT with similar factor intensity, whereas marginal vertical IIT is mainly based on differences in factor endowment.