Determinants of Intra-Industry Trade between East and West Europe

32 Pages Posted: 17 Oct 1997  

Chonira Aturupane

Stanford University - Division of International Comparative & Area Studies

Simeon Djankov

London School of Economics & Political Science (LSE); Peter G. Peterson Institute for International Economics

Bernard Hoekman

Robert Schuman Centre for Advanced Studies; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS); Centre for Economic Policy Research (CEPR)

Date Written: November 1997

Abstract

There is a good deal of intra-industry trade between nations in Central and Eastern Europe and the European Union. Most of it is vertical (the exchange of similar goods of different quality).

Eastern European nations and the European Union (EU) is among the highest of all the EU's bilateral trade flows.

Aturupane, Djankov, and Hoekman break down data on these trade flows into horizontal and vertical components and investigate the determinants of each.

They find that vertical intra-industry trade (the exchange of similar goods of different quality) accounts for 80 to 90 percent of total intra-industry trade. It is positively associated with product differentiation, labor intensity of production, economies of scale, and foreign direct investment.

Controlling for country effects, they find a statistically significant positive association between horizontal intra-industry trade (the exchange of close substitutes of similar quality) and foreign direct investment, product differentiation, and industry concentration. They find a significant negative relationship for economies of scale and labor intensity.

These results do not hold if they do not control for country effects, suggesting that country-specific factors are key determinants of horizontal intra-industry trade.

This paper - a product of the Development Research Group - is part of a larger effort in the group to analyze the role of trade and foreign investment in the process of transition in Eastern Europe.

JEL Classification: F13

Suggested Citation

Aturupane, Chonira and Djankov, Simeon and Hoekman, Bernard, Determinants of Intra-Industry Trade between East and West Europe (November 1997). World Bank Policy Research Working Paper No. 1850. Available at SSRN: https://ssrn.com/abstract=34540

Chonira Aturupane

Stanford University - Division of International Comparative & Area Studies ( email )

Stanford, CA 94305
United States
415-326-9171 (Phone)
415-326-9171 (Fax)

Simeon Djankov

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

Bernard Hoekman (Contact Author)

Robert Schuman Centre for Advanced Studies ( email )

Fiesole, Tuscany
Italy

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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