Intra-Industry Trade Between The United States And Latin American Countries

This paper aims to explain the extent of vertical and horizontal intra-industry trade (IIT) in United State's foreign trade with 20 Latin American countries. It also attempts to identify the country- and industry-specific determinants of vertical and horizontal IIT. One of the main findings is that, with the exception of Mexico, the U.S. trade patterns with rest of Latin American countries are dominated by one-way trade. Another main finding is that the observed increase in intra-industry trade between the United States and Latin America is almost entirely due to two-way trade in vertical differentiation. The third important finding is that, among the country-specific determinants, the level of per capita income and trade intensity are found to affect the shares of all three types of IIT positively while difference in per capita income, difference in economic size, distance, difference in factor endowment, and trade imbalances are found to affect the share of all three types of IIT negatively. Finally, among the industry-specific variables, product differentiation, vertical product differentiation, industry size, and product quality differences are found to have a positive effect while industry concentration is found to have a negative and statistically significant effect on all three types of IIT share.