In a theoretical model, the share of intra-industry trade in an industry's bilateral trade flows (IIT) is determined by relative factor prices in the trading countries, factor intensity, and the elasticity of substitution in demand between products in the industry. The more similar the relative factor prices in different countries, the less "extreme" the factor intensity, while the lower the elasticity of substitution between the products in an industry, the larger the IIT. The empirical study confirms these implications. Furthermore, tariffs and transport costs are shown to have a greater negative effect on intra-industry trade than on inter-industry trade. Copyright 1991 by The editors of the Scandinavian Journal of Economics.