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Chapter 4 notes                                                                                                        

Intra-industry trade:

Cannot use net exports – imports, as both items are part of the same product.

These theories apply to non-homogenous goods.

Net intra-industry trade formula:

1 -|X-M|

     X+M

If the equation is 1, then the intra-trade index is 100 percent with 0 percent extra-industry trade.

Intra-industry trade has grown greatly from 1970 to 2000.

Average costs are critical in determining who has a comparative advantage in an intra-industry situation.

Intra-industry trade with homogenous goods:

1. A foreign market may be closer distance wise than a domestic supplier.
2. With produce, the growing season is different in various parts of the world.  The difference in these growing seasons may force countries to be importers and exporters at various times.

Ways to get intra-industry trade:

1. Differentiate goods vertically or horizontally.
2. Production cycle – exports occur in phase I and II.  Imports occur at phase III.
3. Differences in wages – Intra-industry trade is based on the overlap between country wages.