Equivalence between Increasing Returns and Comparative Advantage as the Determinants of Intra-industry Trade: An Industry Analysis for Korea
- Publisher: Korea Institute for International Economic Policy
East Asian Economic Review
Grubel-Lloyd Index | Increasing Returns | Comparative Advantage | Intra-industry Trade | Trade Costs | Export Margins | Two-part Model | Economics as a science | HB71-74
A two-part model is estimated to see if increasing returns and comparative advantage are empirically equivalent in explaining intra-industry trade. The model has separate mechanisms for determining the occurrence and the extent of intra-industry trade. Estimation is based on an augmented Grubel-Lloyd index derived from the data set on SITC 7 goods at the 3-digit SITC (Revision 4) for country pairs in which Korea is fixed as a source country. Estimation results show that both increasing returns and comparative advantage can explain the occurrence and the extent of intra-industry trade.