PRODUCT QUALITY, PREFERENCE DIVERSITY AND INTRA-INDUSTRY TRADE

This study focuses on the impact of preference diversity and relative country size on intra‐industry trade (IIT) in an industry with a vertically differentiated product. By adopting a two‐stage game model, we find that the IIT share is higher between countries with a similar preference for quality a...

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Bibliographic Details
Published in:The Manchester school 2011-12, Vol.79 (6), p.1126-1138
Main Authors: KIM, TAEGI, NIEM, LE DUC
Format: Article
Language:English
Subjects:
Economic models
Exports
Game theory
Interindustry economics
International trade
Preferences
Product quality
Studies
Trade models
Vertical integration
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Summary:This study focuses on the impact of preference diversity and relative country size on intra‐industry trade (IIT) in an industry with a vertically differentiated product. By adopting a two‐stage game model, we find that the IIT share is higher between countries with a similar preference for quality and that the impact of country size on the IIT index is asymmetric depending on the relative size of the exports and imports of the country. The results of the model can be empirically tested, since preference diversity and country size are related to per capita income and population, respectively.
ISSN:1463-6786
1467-9957
DOI:10.1111/j.1467-9957.2010.02210.x