Equivalence between Increasing Returns and Comparative Advantage as the Determinants of Intra-Industry Trade: An Industry Analysis for Korea
40 Pages Posted: 29 Mar 2018
Date Written: March 30, 2018
A two-part model is estimated to see if increasing returns and comparative advantage are empirically equivalent in explaining intra-industry trade. The model has separate mechanisms for determining the occurrence and the extent of intra-industry trade. Estimation is based on an augmented Grubel-Lloyd index derived from the data set on SITC 7 goods at the 3-digit SITC (Revision 4) for country pairs in which Korea is fixed as a source country. Estimation results show that both increasing returns and comparative advantage can explain the occurrence and the extent of intra-industry trade.
Keywords: Grubel-Lloyd Index, Increasing Returns, Comparative Advantage, Intra-industry Trade, Trade Costs, Export Margins, Two-part Model
JEL Classification: F11, F12, F14
Suggested Citation: Suggested Citation