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).
KeywordsEuropean Union Single Market Employment Change Import Penetration Employment Loss
Unable to display preview. Download preview PDF.
- Commission of the European Communities (CEC) (1988a) ‘The Economics of 1992’, The European Economy, 35, March.Google Scholar
- CEC (1988b) Research on the Cost of Non-Europe: Basic Findings, 16 vols., Brussels: European Commission.Google Scholar
- CEC (1990) ‘The Impact of the Internal Market by Industrial Sector: The Challenge for the Member States’, The European Economy — Social Europe, Special Edition.Google Scholar
- Buigues P. and Ilzkovitz F. (1990) ‘Belgium National Report’, in ‘The Impact of the Internal Market by Industrial Sector: The Challenge for the Member States’, The European Economy.Google Scholar
- Falvey, R.E. and Kierzkowski, H. (1987) ‘Product Quality, Intra-Industry Trade and (Im)Perfect Competition’, in Kierzkowski, H. (ed.), Protection and Competition in International Trade, Oxford: Blackwell.Google Scholar
- Greenaway, D., Hine R., Milner C. and Elliott R. (1994) ‘Adjustment and the Measurement of Marginal Intra Industry Trade’, Weltwirtschaftliches Archiv, 130, 356–67.Google Scholar
- Jacobsson, S. (1988) ‘Intra-Industry Specialisation and Development Models for the Capital Goods Sector’, Weltwirtschaftliches Archiv, 127, 356–367.Google Scholar
- Kol, J. and Mennes L.B.M. (1983) ‘Trade and Industrial Employment: An Accounting for Growth Approach with and Application for the Netherlands’. EADI Proceedings.Google Scholar
- Smeets, D. and Reker C. (1993) ‘Intra-Industry Trade and European Integration: The German Experience’, Paper prepared for the fourth SPES Workshop at the University of Antwerp, October 1993.Google Scholar
- Tharakan, P.K.M. and Waelbroeck, J. (1988) ‘A study on the Comparative Advantage of the Belgian Manufacturing Industries’. mimeo, University of Antwerp.Google Scholar
- Winters, L.A. (1992) Trade Flows and Trade Policy after ‘1992’, Cambridge: Cambridge University Press.Google Scholar