Bilateral Intra-Industry Trade in a Multi-Country Helpman-Krugman Model

Robert C. Shelburne, United Nations Economic Commission for Europe

Abstract

The country characteristics that affect the volume of trade, the volume of intra-industry trade (IIT) and the share of intra-industry trade (SIIT) in the bilateral trade flows of the multi-country Helpman-Krugman-Chamberlin model are derived. This paper argues that the role of similarity in endowments and relative country size have been misinterpreted and that empirical models to test for the importance of these two factors have been misspecified. A new diagrammatical device is introduced that illustrates the relationship between trade volume and similarity in country size.