Measuring Value Added in Gross Trade: Endogenous Approach of Vertical Differentiation

Dutta, Sourish (2023): Measuring Value Added in Gross Trade: Endogenous Approach of Vertical Differentiation.

Abstract

From the beginning of the 1980s, the first theoretical analysis of intra-industry trade showed that the determinants and consequences of this type of trade are different, depending on whether the traded products differ in quality. When the products are subject to intra-industry trade between two countries with distinct qualities, this trade is vertically differentiated. Otherwise, it is called horizontal differentiation. There is a method for distinguishing intra-industry trade between two countries in vertical differentiation from those in horizontal differentiation. This method compares exports' unit value to imports for each industry's intra-industry trade. It considers the intra-industry trading carried out in this industry as vertical differentiation when the unit value of exports differs significantly from that of imports. This approach has limitations. The discussion below will lead us to think about an alternative method for separating and measuring intra-industry trade into horizontal and vertical differentiation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Intra-industry Trade, Vertical Intra-industry Trade, Horizontal Intra-industry Trade, Value Added
• Subjects: F - International Economics > F0 - General; F - International Economics > F1 - Trade

References

Abd-el Rahman, K. (1991). Firms’ competitive and national comparative advantages as joint determinants of trade composition. Review of World Economics, 127(1):83–97.

Abd-el Rahman, K. S. (1986). Réexamen de la définition et de la mesure des échanges croisés de produits similaires entre les nations. Revue économique, pages 89–115.

Abd-el Rahman, K. S. (1987). Hypothèses concernant le rôle des avantages comparatifs des pays et des avantages spécifiques des firmes dans l’explication des échanges croisés des produits similaires. Revue d’économie politique, pages 165–192.

Balboni, A. (2007). Le commerce intra-branche en différenciation verticale: Modélisation et mesures empiriques. PhD thesis, Paris.

Chamberlin, E. H. (1949). Theory of monopolistic competition: A re-orientation of the theory of value. Oxford University Press, London.

Fontagné, L. and Freudenberg, M. (1997). Intra-industry trade: Methodological issues reconsidered. Working Papers 1997-01, CEPII.

Greenaway, D., Hine, R., and Milner, C. (1994). Country-specific factors and the pattern of horizontal and vertical intra-industry trade in the UK. Weltwirtschaftliches archiv, 130(1):77–100.

Stiglitz, J. E. (1987). The causes and consequences of the dependence of quality on price. Journal of economic literature, 25(1):1–48.