RDP 9110: Resource Convergence and Intra-Industry Trade 5. Conclusions

The growth of two-way trade in similar commodities has been a prominent feature of the evolution of international trade over recent decades. The results presented in this paper provide the strongest support to date for the theoretical models explaining this phenomena.

At the aggregate level, the growth in intra-industry trade can in large part be explained by the convergence of the resource bases of the OECD nations. This resource convergence has not only played an important role in changing international trade patterns but also has been instrumental in the convergence of per capita incomes amongst the member nations of the OECD.

Using direct measures of differences in resource endowments we also find strong support for the differentiated goods intra-industry trade model in cross sections of trading pairs. The greater the difference in the relative resource endowments of two countries the less important is intra-industry trade in their bilateral trade. The model, however, performed less well in explaining changes in bilateral trade patterns over time. This could well reflect the size and importance of shocks external to the model which influence bilateral trading relationships and the difficulty in satisfactorily modelling dynamics.

With the concepts of desire for variety and increasing returns to scale coming to play increasingly important roles in many areas of economics, the results in this paper are comforting. The models based on these concepts appear to have significant power in explaining international trading relationships. While the theoretical importance of these concepts for models of economic growth and the role of international trade in the growth process are now coming to be understood, empirical support awaits further research.