Article

The measurement of intra-industry trade between unequal partners

Weltwirtschaftliches Archiv 02/1997; 133(3):554-565. DOI: 10.1007/BF02707503
Source: RePEc

ABSTRACT Summary This note argues that the inadequacy of the GL index to correctly reflect the level of intra-industry trade in presence of
trade imbalances may partly be due to measuring intra-industry trade between countries with large differences in economic
size. Several adjustment procedures have been suggested in the literature but it is demonstrated that none of the alternative
measures seem capable of eliminating the problem. A new measure of intra-industry trade is proposed in which the bilateral
level of intra-industry trade is divided by the total number of products traded between two countries to yield an average
level of intra-industry trade per product. This measure may also be applied at industry level, and in contrast to the GL index,
it is highly correlated with the actual level of intra-industry trade.

In studies of intra-industry trade, one should cautiously interpret the GL index since it may give a false picture of the
extent and the volume of intra-industry trade. If the standard GL index is used, it is suggested that also alternative measures
of intra-industry trade are employed to complement the GL index in order to correctly observe the true extent of intra-industry
trade.

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