Economic Geography, Comparative Advantage and Trade Within Industries: Evidence from the OECD

A large share of world trade, especially among the OECD countries, is two-way trade within industries, so-called intra-industry trade (IIT). Despite this, few attempts have been made to examine why countries export some products within industries, whereas they import others. We examine this issue, by means of regression analysis, by examining the shares of IIT that are vertical and horizontal and by examining price dispersion. The regression results suggest that an abundant human capital endowment and a large domestic market increases the quality of OECD-countries’ manufacturing exports, thus offering support for comparative advantage models and newer geography models. We do not find support of increased concentration of production within industries, but do find that human capital becomes an increasingly important determinant of quality over time.Comparative Advantage; Economic Geography; Intra-Industry Trade; vertical differentiation