Suppose, for the sake of argument, that we focus on the sector “cars”. Please Help Me Prove: Inter-industry trade and intra-industry trade differ in terms of the basis of trade, the pattern of specialization and the direction of trade and the implications for policy. intra-industry trade, however, has proven elusive. b. Intra-industry trade is usually discouraged by the government. Inter- vs Intra-” “Inter-” and “intra-” are two prefixes which are commonly used in the English language. World Economy Intra-industry trade Intra-industry trade arises if a country simultaneously imports and exports similar types of goods or services. Some writers have still made attempts to explain the intra-industry trade based on factor endowments by establishing link between the product specifications and the different combinations of the basic factors like labour and capital. Tests based on the Grubel-Lloyd measure of intra-industry trade have consistently shown a significant negative relation between intra-industry trade and proxies for scale economies.’ A recent test seeking to account for import shares by 171 Chapter 9 INTER-INDUSTRY AND INTRA-INDUSTRY SPECIALIZATION IN MANUFACTURED GOODS 9.1 Introduction chapters of this volume examined the determinants of interThe Earlier industry (Chapter 3) and intra-industry (Chapter 8) trade in manufactured goods in the framework of multi-country and multi-industry models. between intra-industry and inter-industry trade and its theoretical relationship to development and conflict. The original H-O theory of international trade is not capable of explaining the intra-industry trade. Contrast this with inter-and you immediately see the difference. We present three hypotheses that link intra-industry trade to 3 Findlay and O’Rourke, Power and Plenty, p. 426. (4 Marks) Explain why countries that are similar in … The theory of comparative advantage suggests that trade should happen between economies with large differences in opportunity costs of production. While inter-deals with open systems among groups, intra-deals with closed systems between a single group. Let’s reconsider some of our above examples. The main difference between Inter-Industry trade and Intra-Industry trade is that Inter-Industry trade is based on conventional comparative advantage theories (Ando 2006). Intra- is a prefix used to form words that mean on the inside, within. They sound similar, but when used with other words form words which are very different from each other. Inter-industry and Intra-industry Trade: Inter-industry trade is trade of products that belong to different industries. c. Intra-industry trade is said to occur when the United States exports Ford automobiles and imports Honda automobiles. What does intra mean? Most trade between developed and developing countries is inter-industry trade, while an increasing trade among developed countries is intra-industry trade. Explain the difference between inter-industry and intra-industry trade. 4 As Findlay and O’Rourke explain, industrializing states in … The model suggests that the trade occurs between countries because of the differences in labor productivity that occurs because of technological differences. These countries will trade these goods with each other. Similarity is identified here by the goods or services being classified in the same “sector”. Question Question One: According to the text and theory inter-industry trade reflects comparative advantage while intra-industry trade reflects scale economies and demand for product variation Explain the difference between inter-industry and intra-industry trade. 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