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Intra-industry Trade and Industry Distribution of Productivity: A Cournot-Ricardo Approach

E. Young Song () and Chan-Hyun Sohn ()
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Chan-Hyun Sohn: Department of International Trade and Business, Kangwon National University

No 1120, Working Papers from Research Institute for Market Economy, Sogang University

Abstract: This paper constructs a Cournot-Ricardo model of trade by incorporating Cournot competition in a Ricardian trade model. In this model, the share of intra-industry trade in bilateral trade volume decreases as trading partners become more different in terms of the industry distribution of labor productivity. We show that this relationship is a special case of a more general relationship: the share of intraindustry is decreasing in a specialization index. This specialization index turns out to be equal to the difference in the industry distribution of productivity in the case of our Cournot-Ricardo model, while it is given by the difference in capital-labor in the well-known case of monopolistic competition. As both technologies and factor endowments would be important in shaping specialization patterns in the real world, we conjecture that the share of intra-industry trade is decreasing in two measures of specialization: the difference in the industry distribution of productivity and the difference in capital-ratio. Our OLS estimations strongly support this conjecture. In fixed effects regressions, both measures lose significance in the entire sample, but the industry distribution of productivity is significant in explaining trade between high income countries.

Keywords: Intra-industry trade; specialization; Cournot; labor productivity; industry distribution (search for similar items in EconPapers)
JEL-codes: F11 F12 (search for similar items in EconPapers)
Date: 2011-02
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ftp://163.239.156.99/wpaper/SEY_RIME_2011-20.pdf First version, 2011 (application/pdf)

Related works:
Journal Article: Intra‐industry Trade and Industry Distribution of Productivity: A Cournot–Ricardo Approach (2012) Downloads
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