Horizontal and Vertical Differentiation: Approaching Endogenous Measurement in Intra-industry Trade

TL;DR

This paper reviews methods for measuring intra-industry trade, emphasizing the importance of distinguishing between horizontal and vertical differentiation, and proposes an alternative approach to existing measurement techniques.

Contribution

It introduces an alternative method for differentiating horizontal and vertical intra-industry trade beyond traditional unit value comparisons.

Findings

Existing methods have limitations in distinguishing trade types.

A new approach offers improved differentiation between horizontal and vertical trade.

Understanding trade differentiation impacts economic analysis of intra-industry trade.

Abstract

Studying intra-industry trade involves theoretical explanations and empirical methods to measure the phenomenon. Indicators have been developed to measure the intensity of intra-industry trade, leading to theoretical models explaining its determinants. It is essential to distinguish between horizontal and vertical differentiation in empirical analyses. The determinants and consequences of intra-industry trade depend on whether the traded products differ in quality. A method for distinguishing between vertical and horizontal differentiation involves comparing exports' unit value to imports for each industry's intra-industry trade. This approach has limitations, leading to the need for an alternative method.