Horizontal and vertical intra-industry trade between Eastern Europe and the European Union

The share of intra-industry trade (IIT) in total trade between central and east European nations and the EU is broken down into various components. Vertical IIT is found to account for 80 to 90 percent of total IIT. Controlling for country-specific effects, it is positively associated with product differentiation, labor intensity of production, economies of scale, and foreign direct investment (FDI). Horizontal IIT is also positively correlated with FDI and product differentiation; however, a significant negative relationship is found for scale and labor intensity. JEL no. F13, F15, F23.