Importance of intra-industry trade in the contemporary world economy

Abstract

Patterns of trade between industrialized countries are significantly different from the patterns of trade with the developing ones. This is because the industrialized countries have a similar level of economic development, use similar technologies and production factors and produce similar goods. Therefore, trade between them mainly takes the form of trade within the same industry, which refers to a situation in which a country imports and exports goods belonging to the same sector. Balassa was the first to notice this phenomenon of simultaneous import and export of goods within industry (defined as intra-industry trade) between countries with similar levels of development. The aim of this paper is to present the concept of intra-industry trade, Grubel-Lloyd index, as the most frequently used method of measuring intra-industry trade, and its determinants. The last part of the paper presents the Grubel-Lloyd index of intra- industry trade of selected countries, with the intent to show the increasing importance of this type of trade in global economy.