Endowment Differences and the Composition of Intra-Industry Trade

University of Nottingham, GEP Research Paper 2008/36

31 Pages Posted: 17 Jun 2009

See all articles by Rod Falvey

Rod Falvey

Bond University - Department of Economics

Chris Milner

University of Nottingham - School of Economics

Manuel Heredia Cabral

University of Minho

Multiple version iconThere are 2 versions of this paper

Date Written: November 15, 2008

Abstract

This paper investigates the relationship between differences in endowments and different types of trade, in particular vertical intra-industry trade (VIIT). We build a general equilibrium framework based on a hybrid of the Chamberlain-Heckscher-Ohlin and the specific factors models that generates predictions about how the shares of different types of intra-industry and net trade flows change with differences in endowments. We also present some empirical evidence for European Union trade with its 51 major trading partners. The econometric models of the determinants of the different types of trade confirm the theoretical predictions, namely that the effect of cross country differences in the endowments of trading partners on the share of vertical IIT in total bilateral trade differs from their effect on both horizontal IIT and net trade. 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.

Keywords: Intra-industry trade, factor endowments

JEL Classification: F11, F14

Suggested Citation

Falvey, Rod and Milner, Chris and Cabral, Manuel Heredia, Endowment Differences and the Composition of Intra-Industry Trade (November 15, 2008). University of Nottingham, GEP Research Paper 2008/36. Available at SSRN: https://ssrn.com/abstract=1420036 or http://dx.doi.org/10.2139/ssrn.1420036

Rod Falvey (Contact Author)

Bond University - Department of Economics ( email )

Bond University - Department of Economics
Gold Coast, Queensland 4229
Australia

Chris Milner

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

Manuel Heredia Cabral

University of Minho ( email )

Braga, 4700
Portugal

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