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This paper investigates intra-industry trade (IIT) dynamics for Estonia, Latvia, and Lithuania in 1999-2007. IIT is decomposed into its vertical and horizontal components based on differences in import and export unit values. Results show that shares of IIT have increased within the period, with vertical IIT dominating. Shares of total vertical and horizontal IIT have grown since 2004, the year of accession to the European Union. Using panel data analysis, we estimate three static models and a dynamic model of IIT determinants. We find market size to be important in the Baltic states for IIT in general and for horizontal IIT in particular. A negative relationship between distance and share of IIT is a standard finding. Among factor endowment variables, we find difference in human capital to be significant in explaining IIT.

This book explore the future of East Asia's middle-income countries.Without the advantages of low wages or high skills, and with limited natural resources, East Asian economies are following a new path of regional integration, led by China.

This paper constructs a simple model to explain how trade in vertically differentiated products affects the welfare of the trading countries when product quality can be selected by firms. We specifically devise a model showing that when trade expands a market, firms will intensively invest in R&D activities to build higher quality into their goods and thus benefit the entire region. We find that trade does not increase the variety of goods but increases their cost due to their higher quality. We conclude that quality improvement is the main mechanism that helps countries gain from trade in vertically differentiated goods.

This paper extends our previous research on East Asia to the case of 14 European countries from 1977 to 1999. According to our empirical results, intraindustry trade is again the major channel through which the business cycles of European countries become synchronized. This contrasts with existing studies that found that increased trade itself led to the synchronization of business cycles. Our findings have important implications for the adoption of a currency union, as we expect that the costs of joining a currency union will diminish significantly only when intraindustry trade becomes dominant.

As the world marketplace becomes ever more globalized, much is at stake for the prosperity of hundreds of millions of people in Europe and Central Asia as the region’s transition process continues through its second decade. Understanding the underlying dynamics shaping the contours and most salient impacts of international integration that have emerged—and likely to emerge prospectively—in the region is thus a crucial challenge for the medium term economic development agenda, not only for policymakers in the countries on themselves, but also for their trading partners, the international financial institutions, the donor community and the future of the world trading system as a whole. This book addresses this challenge.

Ukraine's Trade Policy identifies the key drivers of Ukraine's recent trade performance, assesses current trade policies, and proposes recommendations to strengthen the Ukraine’s trade integration strategy. It also identifies core bottlenecks in the ongoing integration processes, including global and regional integration. The study concludes that the main obstacles to furthering Ukraine’s trade integration are domestic, and relate to deficiencies in the business environment. Problems in customs administration, standardization, and administrative barriers for new entry require immediate attention. The report highlights specific policy issues that hamper WTO accession, such as trade legislation, protection of intellectual property rights, government support for specific industries, and export restrictions. It also recommends improvements in the structure of Ukraine’s import tariffs, reform of both the regime of free economic zones and mechanism of VAT refund, and investment in a major upgrade of government capacity for investment and export promotion. The report also draws attention to the importance of the post-WTO accession agenda for Ukraine. To take advantage of WTO membership, the Government will need to undertake significant institutional reforms to implement WTO regulatory rules in ways that facilitate integration into the world economy and provide benefits to private sector participants.

This paper measures and compares the Intraindustry Trade (IIT) levels between Colombia and its main economic regions with the Andean Community (AC). It finds that this trade has been overestimated in previous studies due to geographical and aggregation biases. The nature of IIT is predominantly vertical, where Colombia is found to produce higher quality varieties. As for the regions, the “center” provinces of each region explain the largest part of the sector composition of the most significant IIT flows with the AC. This result evidences the strong relationship between IIT and regional development, which is found to be more relevant than other factors such as geographical proximity.

This work describes why expanding trade and investment is vital for this region. The greatest economic challenge is to create enough jobs for its rapidly growing labor force, which is increasingly young and educated, to ward off threats to social and political stability inherent in high unemployment rates. This effort requires higher, and more sustainable, economic growth than has been achieved in the past two decades. Expanding trade and private investment offers the best hope. The potential is enormous given the region's human resources, skills, location, history, and opportunities. The book analyzes why the region has yet to tap fully into the rich stream of global commerce and investment--and the measures needed to do so, including improvements in the domestic investment climate and reforms in the policies of the region's trading partners. Its findings will appeal to policymakers in the region, the private sector and civil society, trade specialists, donors and partners, and anyone with an interest in the history and prospects of the Middle East and North Africa.

After important policy changes in 1980, Turkey's trade expanded considerably. Although interindustry trade remained predominant, intraindustry trade (IIT) increased substantially. This paper investigates whether the increase in IIT contributed to reducing adjustment costs due to trade expansion. We undertook an econometric approach and considered three-digit International Standard Industry Classification classified data. We used a model developed by Brülhart and Thorpe (2000) for Malaysia, both in static and dynamic forms. Our static results indicate that, if there is any contribution that IIT makes to adjustments in the manufacturing industries of Turkey, it is either nonexistent, if measured by changes in the Grubel-Lloyd index, or in the opposite direction, if measured by the marginal IIT index (A). The dynamic results are somewhat more encouraging, in that the coefficients of the lagged A and Grubel-Lloyd indexes are negative and significant when three yearly changes are considered, but the overall results are not sufficient to conclude that the structural adjustment hypothesis holds for Turkey.