How Reliable are Intra-industry Trade Measures as Indicators of Adjustment Costs?

A number of recent papers have examined measures of intra-industry trade (IIT) and related indicators such as matched and unmatched changes in trade (MCIT and UCIT) as indicators of adjustment costs associated with trade expansion or contraction. We make three contributions to this literature. First, we clarify what is meant by adjustment costs in the context of these IIT-related measures. Second, we present new measures of MCIT and UCIT. Third, we compare our measures with existing measures using some simple numerical examples and data on Irish chemicals trade. We find that previous IIT-related measures tend to overestimate the extent of MCIT, and underestimate UCIT. We also find that the extent of the bias in these measures can be substantial. Thus, they are unreliable as indicators of adjustment costs. Our measures overcome these limitations.


Issue Date:
Mar 01 1996
Publication Type:
Working or Discussion Paper
Language:
English
Total Pages:
16
JEL Codes:
F31; F32
Series Statement:
General Paper No. G-119




 Record created 2018-01-05, last modified 2018-01-22

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