Does Specialization Matter for Trade Imbalance at Industry Level?
This paper investigates the source of bilateral trade imbalance at industry level. We build a simple model based on gravity theory and derive the prediction that the bilateral trade balance in an industry is increasing in the difference between trading partners in the output share of the industry. W...
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Korea Institute for International Economic Policy
2012-09-01
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Online Access: | http://dx.doi.org/10.11644/KIEP.JEAI.2012.16.3.249 |
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doaj-2ce50933127c4ca6917a4b489a1b5f942020-11-24T21:03:19ZengKorea Institute for International Economic PolicyEast Asian Economic Review2508-16402508-16672012-09-01163227247http://dx.doi.org/10.11644/KIEP.JEAI.2012.16.3.249Does Specialization Matter for Trade Imbalance at Industry Level? E. Young Song 0Chen Zhao 1Department of Economics, Sogang UniversityDepartment of Economics, Hong Kong University of Science and TechnologyThis paper investigates the source of bilateral trade imbalance at industry level. We build a simple model based on gravity theory and derive the prediction that the bilateral trade balance in an industry is increasing in the difference between trading partners in the output share of the industry. We test this prediction and find that the difference in industry share is highly significant in predicting both the sign and the magnitude of trade balance at industry level. We also find that FTAs tend to enlarge trade imbalance at industry level. However, the overall predictive power of the model is rather limited, suggesting that factors other than production specialization are important in determining trade balance at industry level. Another finding of the paper is that the influence of the difference in industry share on trade balance increases as we move to industries that produce more homogeneous products. This finding calls into question monopolistic competition as the main driver of gravity in international trade. http://dx.doi.org/10.11644/KIEP.JEAI.2012.16.3.249Trade imbalanceGravity theorySpecializationOutput shareHomogeneous products |
collection |
DOAJ |
language |
English |
format |
Article |
sources |
DOAJ |
author |
E. Young Song Chen Zhao |
spellingShingle |
E. Young Song Chen Zhao Does Specialization Matter for Trade Imbalance at Industry Level? East Asian Economic Review Trade imbalance Gravity theory Specialization Output share Homogeneous products |
author_facet |
E. Young Song Chen Zhao |
author_sort |
E. Young Song |
title |
Does Specialization Matter for Trade Imbalance at Industry Level? |
title_short |
Does Specialization Matter for Trade Imbalance at Industry Level? |
title_full |
Does Specialization Matter for Trade Imbalance at Industry Level? |
title_fullStr |
Does Specialization Matter for Trade Imbalance at Industry Level? |
title_full_unstemmed |
Does Specialization Matter for Trade Imbalance at Industry Level? |
title_sort |
does specialization matter for trade imbalance at industry level? |
publisher |
Korea Institute for International Economic Policy |
series |
East Asian Economic Review |
issn |
2508-1640 2508-1667 |
publishDate |
2012-09-01 |
description |
This paper investigates the source of bilateral trade imbalance at industry level. We build a simple model based on gravity theory and derive the prediction that the bilateral trade balance in an industry is increasing in the difference between trading partners in the output share of the industry. We test this prediction and find that the difference in industry share is highly significant in predicting both the sign and the magnitude of trade balance at industry level. We also find that FTAs tend to enlarge trade imbalance at industry level. However, the overall predictive power of the model is rather limited, suggesting that factors other than production specialization are important in determining trade balance at industry level. Another finding of the paper is that the influence of the difference in industry share on trade balance increases as we move to industries that produce more homogeneous products. This finding calls into question monopolistic competition as the main driver of gravity in international trade.
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topic |
Trade imbalance Gravity theory Specialization Output share Homogeneous products |
url |
http://dx.doi.org/10.11644/KIEP.JEAI.2012.16.3.249 |
work_keys_str_mv |
AT eyoungsong doesspecializationmatterfortradeimbalanceatindustrylevel AT chenzhao doesspecializationmatterfortradeimbalanceatindustrylevel |
_version_ |
1716773405886251008 |