INTRA-INDUSTRY TRADE: THE CASE OF EUROPEAN UNION’S AGRI-FOOD SECTOR

This thesis is concerned with two basic issues. First, whether the existence of intra-industry trade is a real phenomenon of the modern trade patterns or merely a “statistical artifact” due to “categorical aggregation” in the compilation of international trade statistics. There has been considerable debate on this issue with inconclusive results. Balassa (1967, 1971, 1979), Lancaster (1960, 1980), Hesse (1974), Grubel and Lloyd (1975), Aquino (1978), Linder (1961) argue that intra-industry trade is a stable characteristic of an industry, and, therefore, is a real phenomenon on both theoretical and empirical grounds. On the other side, critics like Finger (1975), Lipsey (1976), Tiberi (1981), Gray (1979), and Pomfret (1978) argue that intra-industry trade is mainly a statistical illusion. Doubt arises as a result of data compilation. It is maintained that the trade data are arbitrarily grouped in industry products that are produced using different input mixes and are not close substitutes. These economists assert that intra-industry trade would disappear if narrower group definitions were used. While this seems to be a partially satisfactory explanation for the apparent contradiction of the one market one price principle, it probably constitutes a retreat from, rather than an indication of, the Hecksher-Ohlin hypothesis. In order to avoid this doubt various attempts have been made to estimate the intensity of IIT at finest levels of disaggregation. Different measures of IIT have been computed and analyzed. The empirical results are documented in Chapter 3. These results indicate the importance of intra-industry trade in EU’s agri-food trade. The second issue arose with respect to identify and understand the nature of intra-industry trade flows and to empirically analyze the potential country-specific and industry-specific determinants of IIT in EU. Specifically to shed light on the different types of intra-industry trade (Abd-el-Rahman 1991, Fontagné and Freudenberg, 2001, Moro-Egido, 2010), depending on the type of product differentiation prevailing in each industry; on the framework for analyzing the competitiveness of trade flows by the price and quality competition in IIT between EU-countries (AIGINGER, 1997,1998, Gelhar and Pick, 2002, Ninni, 2006); on the relationship between IIT and various economic factors relating country attributes and industry characteristics (Bergstrand, 1982, Helpman and Krugman, 1985, Anderson and van Wincoop, 2003). Various testable hypotheses have been drawn from the emerging theoretical discussion in Chapter Four. The methodology involving the measurement of IIT has been analyzed in Chapter Three. Different values of IIT indices have been computed and examined in also in Chapter Four and Three. These estimated values of IIT indices have been used as dependent variables in relation to the determinants of IIT. The empirical tests of these hypotheses are presented and examined in Chapter Four. These results indicate the importance of vertical intra-industry trade in agri-food market of European Union.