Determinants of intra-industry trade : a cross-industry examination of Canadian manufacturing industries
Date
1988
Authors
Taye, Haile Kebret
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Abstract
The simultaneous export and import of similar commodities between two countries or group of countries (intra-industry trade) cannot be fully explained by the traditional trade theory of comparative cost. This has led to a search for alternative theoretical explanations and to further empirical investigation of the phenomenon.
Various hypotheses have been suggested as determinants of intra-industry trade in recent years. The objective of this study is then to empirically examine these hypotheses using the data of Canadian manufacturing industries. The data pertains to 67 industries at the 4-digit Standard Industrial Classification (SIC) level for the year 1981.
The study examines and tests the following hypotheses as determinants of intra-industry trade. (1) The more differentiated are the products of competing firms, the higher will be the share of intra-industry trade in total trade. (2) The more extensive are the scale economies in a given industry, the less should be the volume of intra-industry trade. (3) The larger is the firm-specific technical knowledge, the higher will be the share of intra-industry trade of the technological gap variety. And (4) the greater the degree of comparative advantage or disadvantage of an industry, the less will be the volume of intra-industry trade.
On the whole, the empirical results support the hypotheses outlined above. More specifically, the results indicate a strong support for the economies of scale hypothesis, and a modest support for the product differentiation and comparative advantage hypotheses. The empirical support for the firm-specific technical knowledge is relatively weak.