Demand patterns and vertical intra-industry trade with special reference to North-South trade

Abstract

Demand patterns have been considered important driving forces of intra-industry trade (IIT) ever since the emergence of IIT literature. The distribution of income within countries and per capita income differences between countries are regarded as major explanatory factors behind vertical IIT. This paper focuses on North-South trade, and we are particularly interested in the role of income distribution and per capita income as demand-side determinants of vertical IIT. We test hypotheses on differences in income distribution, differences in per capita income, and average market size in three different empirical approaches; an economy wide, a multiindustry, and a sector level approach. The results show evidence of the role of income distribution and per capita income, that there is an important interaction between these two variables, and that the average market size matters.5

Driving forces of vertical intra-industry trade in Europe 1996–2005

“…Crespo and Fontoura (2004) also use GDP per capita as a proxy of physical capital and find a positive relationship with VIIT. On the other hand, Gullstrand (2002b), who also uses GDP per capita as a proxy of physical capital, expects a negative relationship with VIIT. However, his empirical results do not support any explanatory power of differences in factor endowments.…”

“…Furthermore, since Gullstrand (2002b) and Crespo and Fontoura (2004) find an interaction between difference in income distribution within countries (measured as difference in GINI coefficients) and difference in GDP per capita, we may suspect the effect of AGDPC to depend on INCO. The sign of the interaction will be determined empirically.…”

Vertical allocation of the production between identical countries: intra-industry trade in both a final good and the connected intermediate good

“…In many econometric analyses it is pointed out that trade among industrialised countries is characterised by intra-industry trade, i.e., two-way trade, see, e.g., Greenaway et al (1995), Aturupane et al (1999), Durkin and Krygier (2000), Gullstrand (2002), Mora (2002) and Crespo and Fontoura (2004). The intra-industry trade takes place in both final goods and intermediate goods.…”

Intra-industry trade: a methodology to test the automobile industry in South Africa

“…A study by Gullstrand (2001) focuses on analysing demand patterns and vertical IIT between the North (EU countries) and the South (lower income countries). Employing HS 6-digit level data for 1992, the study reveals that income distribution, per capita income (and their interaction) and average market size are important for vertical IIT.…”

“…Most previous studies examine intra-industry trade (IIT) at a highly aggregate level, covering a wide range of industries and many countries or country groups (Greenaway, Milner & Elliot et al, 1995;Hellvin, 1996;Gullstrand, More specifically, the application of IIT theory to South Africa is as yet limited (Simson, 1987;Parr, 1994;Isemonger, 2000;Al-Mawali, 2005). The local automotive industry particularly has never been studied from this angle, and so this paper is a first attempt in this direction.…”