INTRA-INDUSTRY TRADE AND ADJUSTMENT Intra-Industry Trade and Adjustment The European Experience Edited by Marius Briilhart University of Manchester and Robert C. Hine University of Nottingham ~ in association with ~ PALGRAVE MACMILLAN First published in Great Britain 1999 by MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 6XS and London Companies and representatives throughout the world A catalogue record for this book is available from the British Library. ISBN 978-1-349-27175-7 ISBN 978-1-349-27173-3 (eBook) DOI 10.1007/978-1-349-27173-3 First published in the United States of America 1999 by ST. MARTIN'S PRESS, INC., Scholarly and Reference Division, 175 Fifth Avenue, New York, N.Y. 10010 ISBN 978-0-312-21568-2 Library of Congress Cataloging-in-Publication Data Intra-industry trade and adjustment : the European experience I edited by Marius Briilhart and Robert C. Hine. p. em. Includes bibliographical references and index. ISBN 978-0-312-21568-2 (cloth) 1. European Union countries-Commerce. 2. Industries-European Union countries. I. Briilhart, Marius. II. Hine, R. C. HF3496.5.158 1998 382'.094-dc21 98-16157 CIP ©Centre of Research in European Development and International Trade (CREDIT) 1999 Softcover reprint of the hardcover 1st edition 1999 978-0-333-62304-6 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P 9HE. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. 10 9 8 7 6 5 4 3 2 1 08 07 06 05 04 03 02 01 00 99 This book is dedicated to the memory of Johan Torstensson 1964-1998 in appreciation both of his friendship and of his distinguished contribution to scholarship in the economics of international trade. Contents List of Contributors IX Preface X David Greenaway Overview Marius Brillhart and Robert C. Hine PART I: THEORY AND MEASUREMENT 2 Intra-Industry Trade: What Does the Theory Predict and How Robust Are the Empirical Estimates? 13 Johan Torstensson 3 Marginal Intra-Industry Trade and Trade-Induced Adjustment: A Survey 36 Marius Brillhart 4 Vertical and Horizontal Intra-Industry Trade: An Analysis of Country- and Industry-Specific Determinants 70 Robert C. Hine, David Greenaway and Chris Milner 5 A Survey of Intra-Industry Trade in the European Union 98 Marius Brillhart and Robert J.R. Elliott PART II: COUNTRY STUDIES 6 Belgium 121 P.K.M. Tharakan and German Calfat 7 France 135 Mohamed Harfi and Christian Montet 8 Germany 151 Heinz-Dieter Smeets VII Vlll Contents 9 Greece 168 Alexander H. Sarris, Pyrros Papadimitriou and Athanassios Mavrogiannis 10 Ireland 188 Marius Brillhart, Dermot McAleese and Mary O'Donnell 11 Italy 213 Gianpaolo Rossini and Michele Burattoni 12 The Netherlands 225 Jacob Kol and Bart Kuijpers 13 Portugal 239 Manuel Porto and Fernanda Costa Index 252 List of Contributors Marius Brftlhart University of Manchester Michele Burattoni Universita di Bologna German Calfat University of Antwerp, UFSIA Fernanda Costa Universidade de Coimbra Robert J.R. Elliott Manchester Metropolitan University David Greenaway University of Nottingham Mohamed Harfi Universite de Montpellier I Robert C. Hine University of Nottingham Jacob Kol Erasmus University Rotterdam Bart Kuijpers Erasmus University Rotterdam Athanassios Mavrogiannis University of Athens Christian Montet Universite de Montpellier I Dermot McAleese Trinity College Dublin Chris Milner University of Nottingham Manuel Porto Universidade de Coimbra Mary O'Donnell University of Limerick Pyrros Papadimitriou University of Athens Gianpaolo Rossini Universita di Bologna Alexander H. Sarris University of Athens Heinz-Dieter Smeets Heinrich-Heine Universitiit Dusseldorf P.K.M. Tharakan University of Antwerp, UFSIA Johan Torstensson Lund University ix Preface The chapters in this volume are the fruits of a major multinational programme coordinated from the University of Nottingham. The programme was funded under the European Union's Stimulation Plan for Economic Science (SPES). SPES was created to encourage col laboration between researchers across the EU. SPES support on this particular initiative brought together researchers from eight of the Member States in a comparative analysis of intra-industry trade in Europe. As this volume and a related series of journal articles testify, that collaboration proved to be very successful. Moreover, it has also proved to be durable in that a number of sub-sets of these researchers have moved on to collaborate on other projects. I am very grateful for the support provided by the EU and for the efforts which colleagues put into what turned out to be a stimulating and informative programme. Finally I would like to record my thanks to Marius Briilhart and Bob Hine for their expert editorial work on this important volume. David Greenaway X 1. Overview Marius Briilhart and Robert C. Hine 1.1 INTRODUCTION: A TRADING WORLD Increasing openness to international trade has been one of the most conspicuous features of the global economy in the second half of the twentieth century. Trade growth has consistently outpaced income growth, and there are no reasons to doubt that this trend will continue in the next millennium. International trade has boomed because it was freed of numerous barriers that had previously obstructed exchanges across country borders. Barriers to trade fell both through advances in technology, most importantly in the transport and telecommunica tion sectors, and through policy-led liberalization. Policy liberalization occurred at the global level, mainly through successive rounds of GATT negotiations, as well as among numerous regional country groups. As the significance of national boundaries diminishes, econom ies become more exposed to international competitive pressures to which they must adapt or face economic decline. The normative conclusions from economic theory are unchar acteristically consistent when it comes to free trade. With the exception of a few highly specific scenarios, theory tells us that complete trade liberalization produces net gains in economic welfare. International specialization and competition enhance the quantity and variety of attainable output. However, trade theory also suggests that the re moval of trade barriers can impact considerably on countries' pro duction structures and income distributions, and that the net welfare effects of incomplete liberalization can be ambiguous. Even where economic integration is a positive-sum game, it produces losers as well as gainers. A focal issue in this debate are the transitional costs which occur as economies adapt to international competition. Some adjust ments may be easily accomplished - such as minor product re-design. Others may be more far-reaching and difficult to achieve quickly, in particular when they necessitate occupational or geographical mobility of the work force. The severity of trade-related economic restructuring is, therefore, a hotly debated topic in international economics as well as in public policy discourse. Given the likely continuation of trade