Missing factors of intra-industry trade: Some empirical evidence based on Japan

A rising share of Japanese intra-industry trade with the Asian countries is puzzling in the light of the modern theory of international trade. This paper examines the similarity in production technology between the trade partners, as well as the similarity of factor endowment, as a determinant of the share of Japanese intra-industry trade. The empirical results, while supporting earlier studies by Helpman, Krugman, and others, provide some new evidence which indicates that the rising share of intra-industry trade may be due to the increase of technological transactions and the expansion of the intra-firm network through foreign direct investment.