COUNTRY-SPECIFIC FACTORS AND THE PATTERN OF HORIZONTAL AND VERTICAL INTRAINDUSTRY TRADE IN THE UK

A large number of empirical studies have investigated the relationship between country-specific factors and total intra-industry trade (IIT). One important shortcoming of this literature is that it ignores the distinction between horizontal and vertical IIT and ignores the fact that they may have different determinants. This paper disaggregates UK IIT into its horizontal and vertical components and, using bilateral trade data, estimates a series of models incorporating country-specific variables. The results suggest that vertical IIT is more important in the UK than horizontal IIT and that the inter-country pattern of vertical IIT is systematically related to a range of explanatory variables. JEL No. F10, F14