A growing body of recent empirical research uses measures of change in intra-industry trade as indicators of labor market adjustment. In this paper, we argue that the theoretical foundations for this work are problematic. To make this argument we develop a simple model with both inter- and intra-industry trade and adjustment. We define measures of IIT and of labor reallocation and, in the context of the model, compare and contrast them. We find that changes in domestic absorption, which influence trade flows but which are distinct from production changes, make changes in IIT an unreliable guide to labor market pressure. JEL Classification: F10; F14 Keywords: Intra-industry trade; Labor reallocation

In this paper we analyse the dynamics of trade patterns in the six largest industrialised countries and in eight fast growing Asian economies. For each of these countries we study the shape of the sectoral distribution of an index of trade specialisation and its evolution over time. Our analysis shows a marked difference between the advanced and the emerging countries as far as the degree of persistence is concerned: the former have in fact a highly persistent trade pattern, whereas the latter show a rapidly changing trade specialisation. However, the two groups of countries are more similar as far as the evolution of the degree of specialisation is concerned: although emerging countries are still more specialised than the industrialised countries, both groups show a tendency toward a reduced polarisation and a more symmetric distribution of the specialisation index. This evidence is in line with the traditional trade theory, in which changing comparative advantage is the determinant of a changing trade pattern. On the contrary, this evidence does not support the idea that self-reinforcing mechanisms are prominent in international trade specialisation. JEL Classification: F10 We would like to thank Maria Luisa Mancusi for her valuable technical support. We have benefited

In light of the growing significance of trade in financial services, and the emphasis placed on trade in financial services during the Uruguay round of trade negotiations, this article is the first study of the determinants of intraindustry trade (IIT) in insurance services. The article analyzes and measures the magnitude of IIT in insurance services for the United States. The empirical results of the determinants of IIT indicate that foreign direct investment in insurance services (FDI) is a significant contributor to the volume of trade in insurance services. These empirical findings confirm the new theoretical trade models that, unlike the traditional trade theory that considered trade and foreign direct investment in insurance services as substitutes, trade and FDI complement each other and hence multinational insurance companies are contributing to an increase in the volume of trade in insurance services. Furthermore, this study shows that trade intensity between the United States and its trading partners leads to product differentiation in insurance services and hence an increase in consumer welfare.

This paper analyzes the theoretical and empirical relationship between intraindustry trade flows (IIT) in manufactures and technical change for the Colombian manufacturing industry during 1970-1995 period. A general estimating equation for sources of change of the equilibrium number of varieties, in which TFP growth is one of its components, is derived from the basic model of trade in differentiated good with monopolistic competition. Based on that relationship several estimations on the determinants of IIT flows are carried out. The econometric set up follows a panel data and cross section estimations of a system of simultaneous equation models (SEM). TFP and IIT indices are the endogenous variables of the system meanwhile industry characteristic, trade policy, and innovation-activity variables form the set of exogenous instruments. In addition, the paper presents a comparative analysis in the direction and trends of intraindustry trade flows in manufactures among the group of seven, Latin American free trade area members (LAFTA), and Colombia since 1970. __________________________________ * I am grateful with Werner Baer, Hadi Esfahani and Salim Rashid for their comments and suggestions. I also want to thank Maria Teresa Ramirez for her comments on previous drafts of this version. All reminder errors are by my own.

The large share of employment in the service sector and growing services trade present the potential for trade in services to have a significant impact on the U.S. economy and highlight the importance of being able to analyze the impact. International trade theory and previous empirical work on the manufacturing sector stress several key considerations for understanding the impact of globalization: 1. The prevalence (how many activities?), scale (how much is being traded?), and direction (who is trading with whom?)of trade in services 2. How trade in services evolves over time 3. The factor intensities used in services provision 4. The factor intensities across locations 5. Firm-level heterogeneity (in size, factor intensities, productivity, trade activity) within and across industries and countries Currently available data on the service sector do not support these data needs. Two broad areas require improvement: Increased industry and geographic detail in trade in services statistics: Current trade

In this paper we follow the line of empirical research on monopolistic competition and international trade originated by the pioneering work of Helpman [1987] and later continued by Hummels and Levinsohn [1995]. We investigate two hypotheses derived directly form a single theoretical framework to reconsider the conflicting evidence delivered by the previous studies. We replicate previous tests and present ways in which earlier work could be potentially enriched and improved. We start with the hypothesis concerning the volume of trade. We separate the relative country size effect from the absolute country size effect which makes us possible to interpret and investigate magnitudes of estimated parameters. Then we turn to the hypothesis concerning the share of intra-industry trade and make an attempt to solve Hummels-Levinsohn puzzle. We find that previous studies might have suffered from the omitted variable problem. Our empirical results make us think that the theory of monopolistic com...

Over the centuries, international trade and the location of economic activity have been at the forefront of economic thought. Even today, free trade, globalization, and urbanization remain as commonplace topics in the popular debate as well as in scholarly analyses. Traditionally, trade theory and economic geography evolved as separate subfields of economics. More

This paper quantitatively tests the “new trade theory ” based on product differentiation, increasing returns, and imperfect competition. We employ a standard model, which allows both changes in the distribution of income among industrialized countries, emphasized by Helpman and Krugman (1985), and nonhomothetic preferences, emphasized by Markusen (1986), to effect trade directions and volumes. In addition, we generalize the model to allow changes in relative prices to have large effects. We test the model by calibrating it to 1990 data and then “backcasting ” to 1961 to see what changes in crucial variables between 1961 and 1990 are predicted by the theory. The results show that, although the model is capable of explaining much of the increased concentration of trade among industrialized countries, it is not capable of explaining the enormous increase in the ratio of trade to income. Our analysis suggests that it is policy changes, rather than the elements emphasized in the new trade theory, that have been the most significant determinants of the increase in trade volume. c°2001, Raphael Bergoeing and Timothy J. Kehoe. This paper grew out of the Bergoeing’s 1996 Ph.D. thesis

Ability of managers and other nonproduction professionals is key for the productivity of firms. Hence, the assignment of heterogeneous nonproduction workers across firms determines the distribution of productivity. In turn, the transmission of productivity differences into profit differences – resulting from product market competition – determines firms ’ willingness to pay for higher managerial skills. This paper explores the equilibrium assignment of nonproduction workers across ex ante identical firms which results from this interaction between product market and the market for nonproduction skills. The analysis suggests that, typically, large and productive firms coexist with small, low-productivity firms. Consistent with empirical evidence, a skewed distribution of firm size tends to arise. Moreover, the model predicts a positive relationship of firm size to productivity, manager quality, and manager remuneration. Finally, according to comparative-static analysis, higher intensity of product market competition can account for increases in the compensation at the top of the wage distribution.

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