Journal of Industry, Competition and Trade

, Volume 11, Issue 2, pp 149–186 | Cite as

Vertical Intra-Industry Trade and Product Fragmentation in the Auto-Parts Industry

  • Kemal Türkcan


A distinctive feature of present globalization is the development of international production sharing activities, i.e. production fragmentation. The increased importance of fragmentation in world trade has created an interest among trade economists in explaining the determinants of intra-industry trade (IIT) in intermediate goods. In this study, the extent of IIT in Austria’s auto-parts trade is analyzed by decomposing Austria’s auto-parts trade into one-way trade, vertical IIT, and horizontal intra-industry trade IIT. Then, the development of vertical IIT in the auto-parts industry is examined as an indicator for international fragmentation of the production process between Austria and its 29 trading partners, and various country-specific factors suggested by the fragmentation literature are tested using panel econometrics as well as more recent data from 1996 to 2006. The results show that a substantial portion of IIT in the Austrian auto-parts industry is vertical IIT, and the econometric results mainly support the hypothesis drawn from the fragmentation theory. In particular, the findings show that the extent of Austria’s vertical IIT in auto-parts is positively correlated with average market size, differences in per capita GDP, and foreign direct investment, while it is negatively correlated with distance.


vertical intra-industry trade fragmentation Austrian auto-parts industry panel data techniques 

JEL Classification

F-14 F-15 



I would like to thank Martin Falk, Yushi Yoshida, and Aysegul Ates and the conference participants at the European Trade Study Group (ETSG) 10th Annual Conference held in Warsaw for their valuable comments and suggestions. The author started this project as a visiting researcher at the Austrian Institute of Economic Research (WIFO) in summer 2008. I wish to thank WIFO for its hospitality and research support.


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© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  1. 1.Department of EconomicsAkdeniz UniversityAntalyaTurkey

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