of decreasing average costs, so that strong support for lower barriers to trade can be expected. These issues are explored in more depth in Chapter 8.
There now exists a large and growing theoretical and empirical literature on the subject of intra-industry trade. One of the earliest works on this subject was:
Grubel, H. and Lloyd, P.J. Intra-Industry Trade—The Theory and Measurement of International Trade in Differentiated Products (London and Basingstoke: The Macmillan Press, 1975).
An excellent, more recent text covering the entire subject matter is:
Greenaway, D. and Milner, C. The Economics of Intra-Industry Trade (Oxford: Basil Blackwell, 1986).
On the theory of intra-industry trade, the most important contributions remain the following:
Brander, J. 1981. A Intra-Industry Trade in identical commodities, Journal of International Economics,11, pp. 1-14.
Brander, J.A. and Krugman, P. 1983. A reciprocal dumping model of international trade , Journal of International Economics,13, pp. 313-21.
for the reciprocal dumping model. For models of horizontal intra-industry trade, the most important contributions are the following:
Lancaster, K. 1980. Intra-industry trade under perfect monopolistic competition, Journal of International Economics,10, pp. 151-76.
Helpman, E. 1981. International trade in the presence of product differentiation, economies of scale and monopolistic competition, Journal of International Economics,11, pp. 305-40.
Dixit, A.K. and Stiglitz, J. 1977. Monopolistic competition and optimum product diversity, American Economic Review,67, pp. 297-308.
Krugman, P. 1979. Increasing returns, monopolistic competition and international trade, Journal of International Economics,9, pp. 469-79.
Krugman, P. 1980. Scale economies, product differentiation and the pattern of trade, American Economic Review,70, pp. 950-59.
Krugman, P., Trade in differentiated commodities and the political economy of trade liberalisation, in Bhagwati, J. (ed.), Import Competition and Response (Chicago: University of Chicago Press, 1982).
Venables, A.J., 1984. Multiple equilibria in the theory of international trade with monopolistically competitive industries, Journal of International Economics,16, pp. 103-21.
Dixit, A.K. and Norman, V., Theory of International Trade (Cambridge: Cambridge University Press, 1980).
For vertical intra-industry trade, the interested reader should refer to the following:
Falvey, R.E. 1981. Commercial policy and intra-industry trade, Journal of International Economics,11, pp. 495-511.
Falvey, R.E. and Kierzkowski, H., Product quality, intra-industry trade and imperfect competition, Discussion paper, Graduate Institute of International Studies, Geneva, 1984.