Intra-Industry Trade Case Study

In the early 21st century, nations are more closely linked than ever before through trade in goods and services, flow of money, and investment in each other’s economies, and the global economy created by these linkages in each turbulent place. International trade is considered to be one of the keys factors of macroeconomics prosperity. The increase of international trade has been as a result of globalisation process, thus international trade seems to become more complicated over the years (Surugiu and Surugiu, 2015). For example, countries globally usually trade in different kind of goods and services, but nowadays they become to trade in similar products, so-called intra-industry trade. This intra-industry trade seems to be different from comparative advantage theory. For this reason, this essay will compare

Inter-industry trade is one-way trade of different goods while intra-industry trade is two-way exchanges of similar goods. Moreover, inter-industry trade is a trade of products in different industries. Intra-industry trade, on the other hand, is a trade of products in the same industry. According to Forstner and Balance (1990), theses intra- and inter-industry trade models are based on different theories, because inter-industry trade is based on the comparative advantage theory and factor endowment, but intra-industry trade is based on the principle of economies of scale and imperfect competition. Countries usually engage in inter-industry trade, for instance, the trade of footwear products produced in China with technological equipment produced from the United States. Inter-industry specialisation would increase real incomes within a nation, but intra-industry specialisation would bring down prices, this in turn higher real incomes, and particularly increase varieties of goods available for consumers (Grimwade,