Intra‐industry Trade, Aggregation and the HOS Model

Abstract

It seems to be well understood that the simultaneous import and export of goods which have different production functions, but which are aggregated into the same industry in classification schemes such as the SITC, is quite consistent with the standard trade theory of the Heckscher‐Ohlin‐Samuelson (HOS) model. For example, Grubel and Lloyd (1975, p.87) admit that two‐way trade in products such as wood and metal furniture, or nylon and wool yarn, which have similar end uses but different input requirements, can be explained readily by the HOS model (1979, p. 88). Gray explicitly distinguishes between “categorical aggregation” which occurs when there is two‐way trade in goods with different production functions and is consistent with the HOS model, and “true intra‐industry trade” which occurs when a country imports and exports “goods with virtually identical production functions”.

Citation

Rodgers, J.R. (1988), "Intra‐industry Trade, Aggregation and the HOS Model", Journal of Economic Studies, Vol. 15 No. 5, pp. 5-23. https://doi.org/10.1108/eb002677