Do endowments matter for vertical intra-industry trade with emergent countries? Empirical evidence for Spain

Abstract

In this paper, we study the nature of Spanish intra-industry trade and find that intra-industry trade with CEEC, Asian and Mediterranean countries has increased considerably since the middle of the Nineties. The second aim of the paper is to study if the comparative advantage argument also explains the vertical intra-industry trade between countries with different income levels. To this end we build physical, technological and human capital stocks for a large sample of countries. Results obtained with the panel techniques support the idea of a neo Ricardian explanation of VIIT rather than the neo-Hecksher-Ohlin explanation for intra-industry trade with emergent countries. Furthermore, our results suggest that the variables considered, mostly country-specific better explain vertical intra-industry trade than horizontal intra-industry trade. Results obtained with the Heckman method support the idea that IIT is more likely to occur with emergent countries with higher i ncome per capita and with OECD countries that have a more similar level of income to that of Spain. Differences in endowments play an important role to determine the volume of IIT rather than the probability of IIT to occur. An aditional contribution of this paper is to demonstrate that panel approach allows for more robust conclusions than OLS estimations when explaining intra-industry trade. The Heckman procedure to account for the zero flows also represents a major improvement respect to the standard approach.