Empirical Studies in Intra-Industry Trade
There are essentially two types of empirical studies in intra-industry trade: the documentary studies and the empirical tests of the IIT models. The documentary studies provide empirical evidence regarding generalised relationships between IIT and certain economic characteristics, e.g., the levels of economic development or the product type. The empirical studies of the hypotheses, spun out by the new theories, attempt to test the explanatory power of the independent variables as suggested or implied by the various theories. But serious problems in testing specific models arise because of diversity in assumed intra-industry trade (homogeneous products, vertically and horizontally differentiated products) and in assumed market structure (oligopolistic, competitive and monopolistically competitive). Separate IIT models focus on the role of separate specific variables, and as yet no single robust IIT theory, combining the various explanatory variable, has emerged. Empirically the various explanatory variables are combined by including these as independent variables in a single linear regression equation. We will turn to these problems again at a later stage in this chapter.
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