INTRAINDUSTRY TRADE - A HECKSCHER-OHLIN-RICARDO APPROACH

The large volume of intra-industry trade is often cited as a critical element favoring trade theories based on increasing returns and imperfect competition over those with constant returns and perfect competition. The former provide an elegant account of intra-industry trade, while the latter, it is often argued, cannot. This paper provides an account of intra-industry trade based squarely on comparative advantage. The key is to introduce elements of Ricardian trade theory within the Heckscher-Ohlin framework. This is appropriate, as essential characteristics of intra-industry trade imply that technical differences matter. Increasing returns, in short, are not necessary for intra-industry trade.