The belief that the formation of the European Union (EU) triggered a considerable amount of intra-industry trade (IIT) between the member countries, and that such IIT increases facilitated industrial structural adjustment in the economies concerned, is now part of the conventional wisdom. The rationale behind this idea is relatively straightforward and can be concisely summed up as follows. The factorintensity factorendowment concordance criterion which is at the core of the HeckscherOhlin interindustry trade model, presupposes differences in the relative factor endowments of the trading countries. Multilateral trade liberalization in such a world increases the possibility for each country to make use of its comparative advantage and this will lead to increased interindustry trade. But if the relative factor endowment of the trade-liberalizing countries is similar, the explanatory power of such a model will be diluted. Nevertheless, similarity of income levels will lead to a taste for similar, but differentiated varieties of products. If greater economies of scale can be achieved by concentrating production of particular varieties in particular countries, trade liberalization between such countries will create an increased exchange of different varieties of the same product, that is increased intra-industry trade. And if trade liberalization leads to increased imports of a particular variety of a product matched by an increase in the exports of another variety, the shift of factors of production required will be of an intra-industrial nature. To the extent the skills requirements of the workers and the expertise of the entrepreneurs necessary for such adjustment are less difficult to master than would have been the case in an interindustry shift, the process would be smoother (see Chapter 3).


European Union Single Market Employment Change Import Penetration Employment Loss 
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© Centre of Research in European Development and International Trade (CREDIT) 1999

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