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Regionalization and Intra-Industry Trade: An Analysis of Automobile Industry Trade in NAFTA

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Document pages: 23 pages

Abstract: As was shown in some previous studies, the creation of the North American Free Trade American (NAFTA) has significantly increased trade and investment flows between member countries. Consequently, it seems appropriate to analyze the incidences of the free trade agreement on the nature of trade. In this paper, we study the intra-industry trade in the automobile industry within the NAFTA area. Our results highlight an increase in intra-industry trade since the beginning of the 1990s. The importance of intra-industry trade is evaluated with the Grubel and Lloyd indicator (1975). For final and intermediate goods, we distinguish those which are horizontally differentiated in quality (differences in unit values) from those in varieties (similar unit values). In NAFTA, intraindustry trade exists in most sectors and in two bilateral relations (United States-Canada and United States-Mexico). Therefore, we analyze the nature of that increase and more precisely, the determinants of intra-industry trade in this industry. Through a gravity model integrating some country-specific and sector variables, we found that economic distance and market size have a predominant influence on horizontal intra-industry trade. In this way, we also confirm the significant role of regional integration on the intensity of intra-industry trade.

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