Evolving pattern of intra-industry trade specialization of the new Member States (NMS) of the EU: the case of automotive industry

This paper analyses intra-industry trade in the new member States and its impact on the convergence process.

The paper investigates the development of intra-industry trade (IIT) of the NMS with major partners between 2000-2007. IIT is separated into horizontal and vertical components on the basis of differences in unit values.
We have found that although inter-industry trade still accounts for almost 50% of the EU-10 countries’ trade, its share has been declining to the benefit of IIT shares (except for Malta). IIT accelerated in the post-accession period. In 2007, Slovenia and the Czech Republic recorded the highest IIT indices.
Intra-industry trade of the EU-10+2 has been dominated by vertical-IIT, usually by low-quality VIIT. However, in almost all NMS, the share of high-quality vertical-IIT, as well as of horizontal-IIT in total trade increased. Thus, the pattern of NMS’ trade specialization has improved.
Growing shares of IIT, in that of HIIT, reflect increasing similarities between EU-10 and the EU-15 and the convergence process of the NMS vis-à-vis EU-15 countries. In the automotive sector, the IIT indices were – generally – higher than in total trade, meaning deeper specialization. This phenomenon can be largely attributed to the high FDI penetration.