DP3368 The Geography of Intra-Industry Trade: Empirics

Author(s): Patricia Rice, Martin Stewart, Anthony Venables
Publication Date: May 2002
Keyword(s): geography, intra-industry trade, trade structure, transport costs
JEL(s): F10, O10, R10
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3368

This Paper uses bilateral trade data for OECD countries at the 3-digit industry level to investigate the geography of intra-industry trade (IIT). IIT diminishes with distance and much of the existing empirical literature suggests that this is an inherent characteristic of such trade, arguing that trade in sectors intensive in IIT is choked off rapidly by distance. We show that the dependence of IIT on geography arises not because of any inherent feature of the effects of distance on such trade, but because of the spatial structure of countries? supply and demand characteristics; close countries do a lot of IIT because they have similar economic structures.