How Does Industrialization Affect the Structure of International Trade? the Japanese Experience in the Pacific Basin, 1975-85

IMF Working Papers, August 1, 1994

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How Does Industrialization Affect the Structure of International Trade? the Japanese Experience in the Pacific Basin, 1975-85

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Bibliographic details

• Authors: Sayuri Shirai
• Published: August 1, 1994
• Series: IMF Working Papers

Summary / Main Findings

• The paper provides a theoretical model addressing how industrialization affects the structure of international trade.
• Considering both horizontal and vertical product differentiation, the model shows that intra-industry trade increases when:
  • product quality improvement emerges in a developing country, and
  • a difference in relative factor endowments between a developed and a developing country shrinks.
• To promote understanding of the model’s conclusions, the paper uses actual trade data between Japan and Indonesia and between Japan and Korea.

Theoretical Framework

• Model incorporates horizontal and vertical product differentiation to analyze shifts in trade structure.
• Key mechanism: improvements in product quality in developing countries raise intra-industry trade.
• Key mechanism: convergence (shrinkage) in relative factor endowments between developed and developing countries raises intra-industry trade.

Empirical Evidence

• Empirical analysis uses actual trade data between:
  • Japan and Indonesia, and
  • Japan and Korea.
• Aim of empirical section: illustrate and support the model’s conclusions through observed trade flows in the Pacific Basin for 1975-85.

Policy-Relevant Implications (derived from model and evidence)

• Industrialization strategies that promote product quality improvement in developing countries can increase intra-industry trade with developed partners.
• Policies that influence relative factor endowments (e.g., skill accumulation, capital accumulation) and lead to convergence with developed countries can alter the composition of trade toward greater intra-industry exchange.

Publication and Metadata

• Author: Sayuri Shirai
• Date: August 1, 1994
• Series: Working Paper No. 1994/095
• Issue: 095
• Volume: 1994
• Pages: 40
• Stock No: WPIEA0951994
• ISBN: 9781451851779
• ISSN: 1018-5941
• Subjects: Agricultural commodities, Commodities, Development, Economic sectors, Exports, Imports, Industrialization, International trade, Manufacturing
• Keywords: Agricultural commodities, developing country, East Asia, Exports, IIT index, Imports, Industrialization, industry index, industry trade, intra-industry trade, manufactures aggregate, Manufacturing, trade volume, WP

Source: IMF Working Papers — "How Does Industrialization Affect the Structure of International Trade? the Japanese Experience in the Pacific Basin, 1975-85", Sayuri Shirai, August 1, 1994, Working Paper No. 1994/095.