Vertical and Horizontal Intra Industry Trade in Some Asian and Latin American Less Developed Countries

Vertical and Horizontal Intra Industry Trade in Some Asian and Latin American Less Developed Countries

A casual look at the intra industry trade (IIT) data of eighteen Asian and Latin American less developed countries show that for them (a) vertical IIT overwhelmingly dominates horizontal IIT and (b) manufactured goods (SITC 6) is one of the two commodity categories (the other being machine and transport equipments (SITC 7)) for which IIT is relatively high. A theoretical model consistent which these observation is constructed and suggests the hypothesis that the level of economic development is a determining character for such kind of trade. Returning to the raw data set we find that such a relationship can indeed be established . Though the overall relationship clearly holds, there are major fluctuations with in the sample and the overall growth rate of IIT falls with increasing levels of economic development.