In search for the determinants of intra-industry trade with an enlarged Europe

Abstract

In this paper we characterise the dynamics of trade among Central and Eastern European Countries (CEEC) and the EU using several methodologies that evaluate the type of trade and price-quality ranges. The analysis shows a significant decline in inter-industrial trade and an increasing specialisation in vertical intraindustry trade (IIT). Moreover, we found substantial differences in the unit values of exported and imported goods, which suggest that the increasing weight of IIT in the EU-CEEC trade did not result from a convergence on the factorial contents of the traded goods. Using a panel data approach we also identify the determinants of both vertical and horizontal IIT. The results suggest that there are some differences in the determinants of these types of trade, although both seem to have a statistically significant relationship with a country’s size and foreign direct investment.