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Economics, Finance, & Information Systems

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This paper aims to explain the extent of vertical and horizontal intra-industry trade (IIT) in United State's foreign trade with the other 33 members of the Free Trade Areas of the Americas (FTAA). It also attempts to identify the country- and industry-specific determinants of vertical and horizontal IIT. This study uses detailed trade data at the 10-digit Harmonized System (HS) industry level and covers a longer and more recent period, 1990 through 2005. The Grubel-Lloyd intra-industry trade index is used to calculate the intensity of these two types of intra-industry trade. One of the main findings is that, with the exception of Canada and Mexico, the U.S. trade patterns with the rest of the FTAA partners are dominated by one-way trade. Another main finding is that the observed increase in intra-industry trade between the U.S. and FTAA is almost entirely due to two-way trade in vertical differentiation. Among the country-specific determinants, the level of per capita income and trade intensity are found to affect the shares of all three types of IIT positively while difference in per capita income, difference in economic size, distance, difference in factor endowment, and trade imbalances are found to affect the share of all three types of IIT negatively. Among the industry-specific variables, product differentiation, vertical product differentiation, industry size, and product quality differences are found to have a positive effect on all three types of IIT shares. Industry concentration is found to have a negative and statistically significant effect on all three types of IIT share.

Publication Title

Journal of International Business and Economics


International Academy of Business and Economics (IABE)