TITLE:
Economic Development, Vertical Intra-Industry Trade and Gains from Trade
AUTHORS:
Le Duc Niem, Taegi Kim
KEYWORDS:
Product Quality; Volume of Trade; Intra-Industry Trade; Economic Development; Gains from Trade
JOURNAL NAME:
Modern Economy,
Vol.5 No.1,
January
6,
2014
ABSTRACT: This paper
investigates the impact of economic development on international trade and
sources of gains from trade based on a theoretical model that considers
consumers’ preference diversity for quality and economies of scale in
production. We confirm that both the volume of trade and the share of
intra-industry trade increase with increases in the level of economic
development in the region. We also find that the intra-industry trade share
increases as the technology levels of the two countries become similar.
Additionally, we find that both countries can gain from trade and that those
gains come from three sources: internal economies of scale, more consumption,
and more variety of goods.