In the article by Roy J. Ruffin, “The Nature and Significance of Intra-industry Trade,” we are provided an account of intra-industry trade. When the words “international trade” are uttered, it is usually thought to be of a country exporting goods representing the countries characteristics (i.e. representing its factor abundance) and importing goods least suited of its characteristics. In other words, inter-industry trade is often associated with international trade. Yet, as discussed by the Ruffin, most industrial countries export and import similar items. This is referred to intra-industry trade. The article first begins by providing a summary of Ricardian and factor endowment to trade theory, progresses to discuss intra-industry trade theory
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Because of this, we shouldn’t expect for trade to have a large impact on income distribution. Another reason for there not being large impact on income distribution, as stated in the article, is that most trade is in the form of intra-industry. Consequently, there isn’t a massive reallocation of factors of productions between different industries; instead the reallocation occurs within industries. Now we move on to discuss the foundations of intra-industry trade. The article states to “think of an industry as consisting of ‘resources’ that must be allocated among different versions of the same generic product” (Ruffin, 5). From here we come to several principle such as: the number of varieties is equal to resources devoted divided by average resources used, resourced used equal fixed costs plus variable costs, every firm exercise some monopoly power, firms enter industry as long as there’s profits, and as devote resources rise number of products rises will both fixed costs and pricing power …show more content…
The significance of this is that 60 percent of European and 20 percent of Japanese trade is intra-industry. Besides, intra-industry trade doesn’t have to come from comparative advantage. Rather, it arises from the fact that products required fixed costs and that products are differentiated. In addition, through intra-industry trade, one is better to gain from trade through exploitation of economies of scale and it stimulates innovation. Interesting, in the U.S. and Mexico trade relationship, most exports and imports are of the same categories. In the table provided in the article, we can see that roughly 80 percent of imports and exports represent intra-industry trade. Overall, intra-industry trade is trade occurring within industries rather than between them. Such trade is beneficial since it stimulates innovation, exploits economies of scale, and is less disruptive than inter-industry trade (since productive factors don’t switch industries). As for the relationship between the U.S. and Mexico, the view that said trade will harm unskilled workers is
Because of this, we shouldn’t expect for trade to have a large impact on income distribution. Another reason for there not being large impact on income distribution, as stated in the article, is that most trade is in the form of intra-industry. Consequently, there isn’t a massive reallocation of factors of productions between different industries; instead the reallocation occurs within industries. Now we move on to discuss the foundations of intra-industry trade. The article states to “think of an industry as consisting of ‘resources’ that must be allocated among different versions of the same generic product” (Ruffin, 5). From here we come to several principle such as: the number of varieties is equal to resources devoted divided by average resources used, resourced used equal fixed costs plus variable costs, every firm exercise some monopoly power, firms enter industry as long as there’s profits, and as devote resources rise number of products rises will both fixed costs and pricing power …show more content…
The significance of this is that 60 percent of European and 20 percent of Japanese trade is intra-industry. Besides, intra-industry trade doesn’t have to come from comparative advantage. Rather, it arises from the fact that products required fixed costs and that products are differentiated. In addition, through intra-industry trade, one is better to gain from trade through exploitation of economies of scale and it stimulates innovation. Interesting, in the U.S. and Mexico trade relationship, most exports and imports are of the same categories. In the table provided in the article, we can see that roughly 80 percent of imports and exports represent intra-industry trade. Overall, intra-industry trade is trade occurring within industries rather than between them. Such trade is beneficial since it stimulates innovation, exploits economies of scale, and is less disruptive than inter-industry trade (since productive factors don’t switch industries). As for the relationship between the U.S. and Mexico, the view that said trade will harm unskilled workers is