International trade in the manufacturing sectors of industrialised countries : theory and evidence
The Thesis investigates the determinants and patterns of specialisation and international trade in the manufacturing sectors of countries that are similar in terms of their technology, relative factor endowments and preferences. Chapter 1 shows that differences in country size alone can be a basis for interindustry trade in manufactures. I present a general equilibrium model in which each country has two imperfectly competitive industries which can differ in three respects: relative factor intensities, level of transport costs and demand elasticities. With positive trade costs and increasing returns to scale, each firm prefers to locate in the larger country due to the 'market access' effect. But the increase in demand for factors in the large country induces a 'production cost' effect - a rise in the wage in the large country relative to the small country to offset the locational advantage of the large country. The tension between the market access effect and production cost effect determines which industry will concentrate in which country and the pattern of inter-industry trade. Chapter 2 investigates circumstance in which technological leapfrogging between regions will occur. Input-output linkages between firms in imperfectly competitive industries create forces for agglomeration of industries in particular locations. A new technology, incompatible with the old, will not benefit from these linkages, so will typically be established in locations with little existing industry and consequently lower factor prices. Chapters 3 studies specialisation patterns in the European Union between 1968 and 1990. It investigates whether specialisation has increased in the European Union countries and analyses whether these patterns are consistent with three different strands of trade theories: the classical Heckscher-Ohlin theory, the 'new' trade theories based on increasing returns to scale, and the 'economic geography' theories based on vertical linkages between industries. I find that there is evidence of increasing specialisation in the European Union countries and there is some support for all three strands of trade theories.