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

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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.

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Notes

  1. The GMM system estimator that we report was computed using DPD for OX (Doornik et al. 2002).

  2. As we point out in the concluding part of this paper, our projected future research will be to test the country-specific hypothesis and, following Hummels and Levinshon (1995), use factor endowments and differences in per-capita income as explanatory variables in both the HIIT and VIIT models.

  3. As the referee suggested, one of the major problems with an IIT index is the trade imbalance. As IIT is biased by the degree of trade imbalance, it is expected that the greater the imbalance, the larger the share of ITT. The consideration of the trade imbalance as a variable to control for bias in estimations should be taken into account. We are giving consideration to including it in the next paper.

  4. Quadros de Pessoal is a data set based on a standardized questionnaire to which all firms with wage earners must respond every year.

  5. The ɛ it are assumed to be independently distributed across industries with zero mean, but arbitrary forms of heteroskedasticity across units and time are possible.

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Acknowledgments

This paper has benefited from helpful comments made by Georgios Chortareas, Celestino Burguet, C. Martin, and other participants at the 60th International Atlantic Economic Conference, October 6–9, 2005, New York, NY. We gratefully acknowledge the comments of an anonymous referee. The usual disclaimer applies.

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Authors and Affiliations

  1. Instituto Superior de Economia e Gestão (ISEG), Technical University of Lisbon, Rua Miguel Lúpi, 20, 1249-078, Lisboa, Portugal

    Horácio C. Faustino

  2. Polytechnic Institute of Santarém (ESGS), Santarem, Portugal

    Nuno C. Leitão

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  1. Horácio C. Faustino
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  2. Nuno C. Leitão
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Correspondence to Horácio C. Faustino.

Appendix

Appendix

Table A1 Determinants of IIT (Static Models)
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Table A2 Determinants of HIIT (Static models)
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Table A3 Determinants of VIIT (Static models)
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Table A4 Determinants of IIT (Dynamic models)
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Table A5 Determinants of HIIT (Dynamic models)
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Table A6 Determinants of VIIT (Dynamic models)
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Faustino, H.C., Leitão, N.C. Intra-Industry Trade: A Static and Dynamic Panel Data Analysis. Int Adv Econ Res 13, 313–333 (2007). https://doi.org/10.1007/s11294-007-9097-8

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