Essays on Intra-Industry Trade

Intra-industry trade (IIT) is one area in international trade that interests me very much. The pattern of world trade has been changing consistently over the last half century, in which the importance of intra-industry trade has increased significantly. Such a trade pattern change has consequences on domestic real economic variables due to the associated capital and labor adjustments. My dissertation sets out to identify the US static and dynamic trade patterns and investigate the determinants of US intra-industry trade. In the analytic part of the dissertation, I introduce capital accumulation and an innovation process into a North-South quality-based product cycle model. The model demonstrates that product quality upgrading is an important channel for FDI to affect North-South intra-industry trade, which explains the observed concurrence of FDI, product quality upgrading and North-South IIT. In the empirical part of the dissertation, I first examine the pattern of the US intra-industry trade, with a separation of horizontal intra-industry trade and vertical intra-industry trade, and then investigate the determinants of the US IIT accordingly. Relevant panel data and limited dependent variable techniques are applied for estimation. The results uncover meaningful information on the static and dynamic patterns of US IIT and provide direct evidence for hypotheses proposed by IIT theory.