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Determinants of intra-industry trade between East and West Europe (English)

Intra-industry trade as a share of total trade between Central and Eastern European nations and the European Union (EU) is among the highest of all the EU's bilateral trade flows. The authors break down data on these trade flows into horizontal and vertical components, and investigate the determinants of each. They find that vertical intra-industry trade (the exchange of similar goods of different quality) accounts for 80 to 90 percent of total intra-industry trade. It is positively associated with product differentiation, labor intensity of production, economies of scale, and foreign direct investment. Controlling for country effects, they find a statistically significant positive association between horizontal intra-industry trade (the exchange of close substitutes of similar quality) and foreign direct investment, product differentiation, and industry concentration. They find a significant negative relationship for economies of scale and labor intensity. These results do not hold if they do not control for country effects, suggesting that country-specific factors are key determinants of horizontal intra-industry trade.


  • Author

    Aturupane, Chonira Djankov, Simeon Hoekman, Bernard

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    Policy Research Working Paper

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    Europe and Central Asia,

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    Europe and Central Asia,

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    Determinants of intra-industry trade between East and West Europe

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Aturupane, Chonira Djankov, Simeon Hoekman, Bernard

Determinants of intra-industry trade between East and West Europe (English). Policy, Research working paper ; no. WPS 1850 Washington, D.C. : World Bank Group.