Patterns and determinants of intra-industry trade within NAFTA
by Klimis Vogiatzoglou
Global Business and Economics Review (GBER), Vol. 8, No. 3/4, 2006

Abstract: We analyse patterns of intra-NAFTA Intra-Industry Trade (IIT) in the USA, Canada and Mexico over the 1992–2002 period, by decomposing IIT into Horizontal IIT (HIIT) and Vertical IIT (VIIT). Additionally, we examine the determinants of both IIT types. Results indicate that HIIT and VIIT within NAFTA exhibit opposite trends. Specifically, HIIT is increasing, whilst VIIT exhibits a significant downward trend, indicating a restructuring in favour of IIT in horizontally differentiated products. However, VIIT still represents the dominant IIT type. Contrary to theoretical expectations, our findings for the determinants of each IIT type suggest that some crucial factors influence HIIT and VIIT in the same way. Overall, our findings imply that on the one hand, comparative advantage is loosing importance in driving intra-NAFTA trade and specialisation patterns, and that on the other hand, trade-induced adjustment costs have become less severe over time.

Online publication date: Thu, 22-Jun-2006

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