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Intra-Industry Trade: A Static and Dynamic Panel Data Analysis

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  • Horácio Faustino
  • Nuno Leitão

Abstract

This study examines the features and determinants of intra-industry trade (IIT), horizontal IIT (HIIT) and vertical IIT (VIIT) between Portugal and the European Union in the period 1996–2002, using a static and a dynamic panel data analysis. The findings indicate that Portuguese VIIT increased significantly during the period in accordance with the values expected for a developed country. The regression results show that there is evidence supporting the explanation of VIIT by Heckscher–Ohlin’s (HO) theory and that Portugal has comparative advantages in low-quality differentiated products. The findings support the theory that, in general, there is no positive statistical association between HIIT and HO variables. The central theme of this paper is to show that it may be preferable to use the GMM approach in empirical studies of IIT rather than pooled OLS, fixed effects or random effects estimators. The results also suggest that the GMM system estimator obtains more reasonable parameter estimates than the first-differenced GMM estimator. Copyright International Atlantic Economic Society 2007

Suggested Citation

  • Horácio Faustino & Nuno Leitão, 2007. "Intra-Industry Trade: A Static and Dynamic Panel Data Analysis," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 13(3), pages 313-333, August.
    • Handle: RePEc:kap:iaecre:v:13:y:2007:i:3:p:313-333:10.1007/s11294-007-9097-8
    DOI: 10.1007/s11294-007-9097-8
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    More about this item

    Keywords

    Intra-industry trade; Horizontal intra-industry trade; Vertical intra-industry trade; Comparative advantage; Dynamic panel data; GMM-SYS Estimator; GMM-DIF Estimator; C20; C30; F12; L10;
    All these keywords.

    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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