The Asymmetric Effect of Endowments on Vertical Intra-Industrial Trade

Abstract

This paper investigates the determinants of vertical Spanish intra-industry trade with developed and developing countries. We empirically test the comparative advantage explanation. To do so, we build physical, human and technological capital stocks. On average, when using OLS techniques, differences in endowments are a limitation for vertical intra-industry trade. Using quantile regression techniques, we observe that this negative effect decreases in absolute terms as vertical intra-industry trade flows increase and, in some cases, the impact becomes positive for the upper tails, thus supporting the view of a reduced version of the comparative advantage explanation. Our results provide interesting insights into Spain and emerging countries. A large part of Spanish trade already takes place on an inter-industry basis or consists of exporting low quality products in exchange for similar products of a higher quality range, in particular with European countries but more surprisingly with emerging countries. Our study shows that high quality exports and horizontal intra-industry trade are mainly driven by proximities of demand and technological capital while low quality exports share most determinants of inter-industry trade.