Intra-Industry Trade in the Automobile Components Industry: An Empirical Analysis

By Leitão, Nuno Carlos; Faustino, Horácio C. | Journal of Global Business and Technology, Spring 2009 | Go to article overview

Intra-Industry Trade in the Automobile Components Industry: An Empirical Analysis


Leitão, Nuno Carlos, Faustino, Horácio C., Journal of Global Business and Technology


ABSTRACT

This manuscript examines the determinants of intra-industry trade (IIT) in the automobile component sector in Portugal. We have examined the Portuguese trade in this sector between European Union (EU-27), the BRIC (Brazil, Russia, India and China), and United States between 1995 and 2006. Using a panel data approach, the results show a negative correlation between endowments and IIT These results indicate that IIT occurs more frequently among countries that are similar in terms of factor endowments. We also introduce economic and cultural dimensions; these proxies confirm the positive effects of IIT Our results also confirm the hypothesis that trade increases if the transportation costs decrease.

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

In the end of 70's, emerged "new trade theories". These models as in Krugman (1979), Lancaster (1980), Helpman (1981), Eaton and Kierzkowski (1984) and Helpman and Krugman (1985) introduced a new reality: intra-industry trade (HT). For others words, these models permit to explain the simultaneous trading (export and import) of a product within a particularly industry. All these models consider the imperfect competition, and economies of scales, and product differentiation.

The empirical models in mid of 80's and the beginning 90' s permits introduced two type of products differentiation (horizontal and vertical intra-industry trade). Greenaway et al. (1994, 1995), and Abd-El-Rahaman (1991) proposed this idea in empirical work.

Horizontal intra-industry trade (HIIT) refers that type of trade occurs within similar quality products. The products are differentiated by attributes (see Krugman, 1979, Lancaster, 1980, Eaton and Kierzkowski 1984, and Helpman and Krugman (1985). Vertical intra-industry trade (VIIT) is explained by different varieties of quality products (see Falvey, 1981, Falvey and Kierzkowski 1987, and Shaked and Sutton, 1984). For example, if the home country is capital abundant, this country will produce a higher quality of products, when we compare with a foreign country (labor abundant). These types of trade are explained by price and quality. In this paper, we analyze the country-specific determinants of intra-industry trade in Portugal in the automobile parts and components industry between European Union 27 (EU-27), of the BRICS countries (Brazil, India, Russia, and China) and United States (US), using an unbalanced panel data for the period 19952006. In this paper we seek to test some hypothesis suggested by the theory of monopolistic competition and the Neo -Heckscher - Ohlin theory.

Most previous studies examine intra-industry trade (HT) covering the industries or countries (Greenaway et al. 1994, 1995, Hummels and Levinsohn, 1995, Aquino, 1978, Balassa, 1986). Only a few empirical studies analyze one industry- specific of intra-industry trade (Tharakan and Kerstens, 1995, Aturupane et al. 1999, Sharma, 2002, Umemoto, 2005, Kimura et al., 2007, Clark 2006, and Wakasugi 2007). With globalisation, we assist a new paradigm in international economics, i.e. fragmentation, or outsourcing. The trade in automobile components between different units of multinational corporations is a good example of this type of trade.

Until the 60' s there were not yet the empirical studies that evaluate this phenomenon. In 1970s, internalization and free mobility of capital across multinational corporations began empirical studies on intraindustry trade (Grub el and Lloyd, 1975). But it is in 90' s that international economics research studies this topic (Jones and Kierzkowski, 1990). In this paper, we revisit Umemoto' s (2005) empirical test as well as the empirical studies of Montout et al. (2002) and , Kimura et al., 2007, Clark 2006, and Wakasugi 2007. Umemoto (2005) analyzed the intra-industry trade between Japan and Korea. The study of Umemoto (2005) shows that VIIT is higher than HIIT in automobile component sector. …

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