Review of World Economics, Vol. 142, No. 3, 2006

Articles

David Greenaway and Chris R. Milner. Recent Developments in Intra-Industry Trade: Introduction by Guest Editors

Jeffrey H. Bergstrand and Peter Egger. Trade Costs and Intra-Industry Trade

Lionel Fontagné, Michael Freudenberg, and Guillaume Gaulier. A Systematic Decomposition of World Trade into Horizontal and Vertical IIT

Abdul K. M. Azhar and Robert J. R. Elliott. On the Measurement of Product Quality in Intra-Industry Trade

Manuel Cabral and Joana Silva. Intra-Industry Trade Expansion and Employment Reallocation between Sectors and Occupations

Marius Brülhart, Robert J. R. Elliott, and Joanne Lindley. Intra-Industry Trade and Labour-Market Adjustment: A Reassessment Using Data on Individual Workers

Manuel Cabral, Rod E. Falvey, and Chris R.Milner. The Skill Content of Inter- and Intra-Industry Trade: Evidence for the United Kingdom

José V. Blanes and Joan A. Martín-Montaner. Migration Flows and Intra-Industry Trade Adjustments

Shorter Papers

Fernando Restoy and Rosa Rodriguez. Can Fundamentals Explain Cross-Country Correlations of Asset Returns?

Jože P. Damijan and Črt Kostevc. Learning-by-Exporting: Continuous Productivity Improvements or Capacity Utilization Effects? Evidence from Slovenian Firms

Abstracts

Jeffrey H. Bergstrand and Peter Egger
Trade Costs and Intra-Industry Trade

Abstract: Formal economic modeling of intra-industry trade ignores transportation or, more broadly, trade costs. Yet, as Anderson and van Wincoop (2004) suggest, trade costs are quite large. This paper extends work by Bergstrand (1990) that addressed intra-industry trade in the explicit presence of trade costs. In the context of a Helpman--Krugman-cum-trade-costs model, we derive four empirically testable hypotheses regarding intra-industry trade and trade costs. These hypotheses are investigated empirically using a cross-section of bilateral OECD Grubel--Lloyd indexes. The results are strongly in accordance with the hypotheses, indicating the importance of a more rigorous and systematic treatment of trade costs in the intra-industry trade literature.

Keywords: Intra-industry trade; trade costs
JEL no. F14, F15

Lionel Fontagné, Michael Freudenberg, and Guillaume Gaulier
A Systematic Decomposition of World Trade into Horizontal and Vertical IIT

Abstract: We provide a systematic decomposition of world trade using harmonized bilateral flows at the most available detail (some 5,000 product categories), into three trade types: inter-industry, intra-industry in horizontally and in vertically differentiated products. The analysis is diachronic and considers country pairs such as France-Germany, United States-China, Malaysia-Singapore, or India-Nigeria. 

We show that the increase in IIT at the world level is due to two-way trade of vertically differentiated products. We find France and Germany having the highest share of IIT in their bilateral trade among all country pairs in the world. In value terms, the most important bilateral IIT is between the United States and Canada. Recently, specialization according to the classical theories of international trade (inter-industry trade), has recovered, due to the increasing participation of emerging economies in world trade.

Keywords: Intra-industry trade; international trade
JEL no. F14, F15

Abdul K. M. Azhar and Robert J. R. Elliott
On the Measurement of Product Quality in Intra-Industry Trade

Abstract: The world has witnessed a dramatic increase in trade over the last forty years. Much of this growth in trade is intra-industry in nature. A relatively recent development in the intra-industry trade (IIT) literature is the measurement of the simultaneous import and export of quality-differentiated products, commonly known as vertical and horizontal IIT. In this paper we compare the Greenaway, Hine and Milner (1994) and Fontagné and Freudenberg (1997) approaches to disentangling vertical and horizontal intra-industry trade and examine some of the implications of employing simple ratios to define the boundary between product quality types. We present a complementary approach based on the traditional Grubel and Lloyd (GL) index and demonstrate with numerical examples its versatility and applicability at the product level.

Keywords: Globalization; vertical and horizontal intra-industry trade; product quality
JEL no. F19

Manuel Cabral and Joana Silva
Intra-Industry Trade Expansion and Employment Reallocation between Sectors and Occupations

Abstract: This paper re-examines the relationship between trade and labour market adjustment costs by explicitly considering the effects of occupational mobility. We investigate the hypothesis that intra-industry trade expansion entails lower adjustment costs than inter-industry trade expansion---the so-called Smooth Adjustment Hypothesis (SAH). This paper makes two new contributions. First, the introduction of a new adjustment variable that considers reallocation between sectors and occupations. Second, a test of the SAH using panel data with relevant trade and non-trade control variables, which overcomes some of the methodological limitations of former studies. The results suggest a confirmation of the SAH and stress the importance of considering the effects of worker moves between occupations in the study of trade-induced adjustment.

Keywords: Intra-industry trade; worker mobility; labour market adjustment
JEL no. F12, F16, J62

Marius Brülhart, Robert J. R. Elliott, and Joanne Lindley
Intra-Industry Trade and Labour-Market Adjustment: A Reassessment Using Data on Individual Workers

Abstract: We re-examine the relationship between intra-industry trade and labour reallocation, using individual-level data on manufacturing worker moves in the United Kingdom. The contribution of this analysis is twofold. First, we estimate the impact of intra-industry trade on worker moves between occupations as well as between industries. Second, we run individual-level regressions that allow us to control for worker heterogeneity. Our results suggest that intra-industry trade does have the stipulated attenuating effect on worker moves, both between occupations and between industries, but that this effect is relatively small compared to other determinants of labour reallocation.

Keywords: Intra-industry trade; worker mobility; labour-market adjustment
JEL no. F1, J62, C25

Manuel Cabral, Rod E. Falvey, and Chris R. Milner
The Skill Content of Inter- and Intra-Industry Trade: Evidence for the United Kingdom

Abstract: In this paper we investigate the relative importance of net exchanges of skills embodied in intra-industry and inter-industry trade for the UK's trade with some middle income countries. We also separately measure the net exchanges of skills embodied in vertical and horizontal intra-industry trade (IIT). We find that there are substantial factor exchanges involved in IIT, implying that traditional factor content studies may have seriously underestimated the actual factor content of total trade flows. This means that the adjustment effects of IIT may be greater than is often presumed. We also find, in line with theory, that vertical IIT involves similar net exchanges of labour of different skills to that of inter-industry trade, while horizontal IIT involves much smaller net exchanges of skills.

Keywords: Factor content; intra-industry trade; technology differences
JEL no. F11, F14

José V. Blanes and Joan A. Martín-Montaner
Migration Flows and Intra-Industry Trade Adjustments

Abstract: In this paper we analyse the link between trade and migration. Focusing on the experience of Spain, we relate a marginal index of intra-industry trade to the stock of foreign workers---classified according to their country of origin and their situation in the Spanish labour market. We focus on the possibility that existing networks of foreign workers and their connections with their countries of origin could stimulate trade with the host country. Our results show a significant impact of the number of immigrants with work permits on intra-industry trade adjustment. However, this impact being positive or negative depends on whether foreign workers are employees or self-employed, the duration of the work permits and the type of job they occupy.

Keywords: Migration; intra-industry trade; networks
JEL no. F10, F14, F15, F22

Fernando Restoy and Rosa Rodríguez
Can Fundamentals Explain Cross-Country Correlations of Asset Returns?

Abstract: Previous studies show that existing correlations between national returns are higher than correlations between the national growth rates of fundamental variables. This paper examines the ability of intertemporal asset pricing models to explain cross-country correlations of national returns. We find that when capital markets are assumed to be fully integrated, a simple intertemporal general equilibrium model is able to explain the observed co-variability of domestic asset returns but generates too little variability in those returns. Results improve considerably if a less restrictive version is employed. In that setting, both domestic variability and cross-country co-variability of returns are consistent with capital market integration.

Keywords: Asset pricing models; cross-country correlations
JEL. no. G12, G15, E44

Jože P. Damijan and Črt Kostevc
Learning-by-Exporting: Continuous Productivity Improvements or Capacity Utilization Effects? Evidence from Slovenian Firms

Abstract: \noindent Following along the lines of a growing literature on the causal link between exporting and productivity, this paper analyzes the existence of ``learning-by-exporting'' using firm-level data for Slovenian manufacturing enterprises between 1994 and 2002. We fail to find conclusive evidence of learning-by-exporting. By matching new exporting firms to "sufficiently" similar non-exporters and using the difference-in-differences method on the matched pairs it is revealed that productivity improvements, although present, are far from permanent and tend to dissipate shortly after initial entry. Confronting the data on factor accumulation with TFP measures indicates that the perceived learning effects may in fact only be a consequence of increased capacity utilization brought about by the opening of an additional market.

Keywords: Firm heterogeneity; exports; learning-by-exporting; difference-in-differences; matching
JEL no. D24, F12, F14