Marginal Intra-Industry Trade: Measurement and Relevance

JEL Classification F10

Marius Brülhart

Department of Economics, Trinity College, Dublin 2, Ireland

Abstract

The presence of high and growing levels of intra-industry trade (IIT) is commonly interpreted as a reason to expect low adjustment costs following trade liberalisation. This paper argues that trade-induced adjustment pressures are not directly related to the level of static IIT but to the structure of change in trade flows. The main aspect of this structure is the proportion of marginal intra-industry trade (MIIT). It is argued that none of the measures of MIIT used to date are entirely satisfactory. Three complimentary measures are thus suggested. The "A" index captures MIIT while preserving the statistical and presentational advantages of the Grubel-Lloyd index of IIT. The "B" index of IIT is related to MIIT as well as to sectoral trade performance, which is particularly relevant for one-country studies. The "C" measure serves to scale MIIT relative to other variables, such as gross trade flows or employment. A numerical example is appended, illustrating the properties of the various measures.

Acknowledgements

I am grateful to Prof Dermot MacAleese for valuable comments on an earlier draft. All remaining errors are my sole responsibility. Part of the research for this paper was financed by the Stimulation Plan for Economic Sciences of the European Union (Contract Number SPES-CT91-0058).