Estimation of Importance of Intra-industry Trade

The globalization and integration processes opened additional possibilities for development of international trade. A large part of trade consists of intra-industry trade, defined as the exchange of broadly similar goods. Intra-industry trade has risen rapidly in the past three decades and now accounts for more than half of all trade manufactures among the industrial countries. Current economic integration process expanded the boundaries of the European Union thus influencing tendencies of changes of intra-industry trade. The causes of intra-industry trade, and its implications for structural adjustment and the gains from trade, have been the subject of much study. Traditional theories such as comparative advantages or factor endowments state that countries with different resources or factor endowments will trade with each other. But empirical evidences show that countries with similar endowments do more trade these days. Based on new theories, monopolistic competition and increasing returns lead to intra-industry trade among countries, whereas the old comparative advantage is still applied for countries separated by high economic distance. Many studies suggest that more developed countries and more specialized trade structure lead to higher intra-industry trade. To understand why economists have to turn their attention to intra-industry trade and its importance are analyzed in this article. The importance of intra-industry trade arises from its basic character: it does not need to be based on comparative advantage. To a large extent intra-industry trade arises from the facts that products are differentiated and the production of any particular product requires some fixed costs. Increasing part of intra-industry trade in the volume of global trade is of the importance to the changes of economy, export and import structure of separate countries. This leads to changing nature of international trade and its structure of goods. Therefore the influence of intra-industry trade on the nature of international trade is analyzed in this article. Seeking to define the influence of intra-industry trade on the nature of international trade the basic theories of intra-industry trade, differences of inter-industry and intra-industry trade are analyzed in the article. For the analysis of the importance of intra-industry trade its share in international trade is measured. Therefore the methods of measurement of importance of intra-industry trade are analyzed in this article. Using Grubel-Lloyd index and standard international trade classification, there was established the nature of international trade between the European Union and its main partners and performed the analysis of Lithuanian intra-industry trade. On the basis of researches the importance of intra-industry trade in respect of international trade nature changes was evaluated in the article.