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When we think of trade, we often think of comparative advantage. But what if a country exports and imports similar goods? This is considered intra-industry trade.

When we think of trade, we often think of comparative advantage. But what if a country exports and imports similar goods? This is considered intra-industry trade. Consider: in 2010, the US exported $1 billion in motorcycles. The US then imported $1.2 billion in motorcycles — very similar to the amount exported. Intra-industry trade has become increasingly important as a percentage of world trade, and varies by industry. For instance, there is high intra-industry trade in the US for scientific and pharmaceutical products, but low intra-industry trade in the US for clothing and apparel. This video also covers how to measure intra-industry trade by country.

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Show 1 Answer (Answer provided by Ion Sterpan)
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We can see that relation if we understand Donald Davis's defense of the Heckscher-Ohlin-Ricardo approach against Helpman and Krugman's objection.
As you note, we know from Ricardo that trade leads to specialization, and specialization to productivity. We also know that there are some initial differences in specialization or endowments to begin with. There is some initial comparative advantage. Trade occurs because people want to take advantage of those initial differences in endowments or skills. We can explain trade starting from differences in specialization existing at one point in time.
But Helpman and Krugman say that this explanation of trade cannot be sufficient, since we have a lot of intra-industry trade. And surely, they believe, if Japan can make Kawasaki motorcycles then they also have the skill to make Harleys. And if the US Harley-Motor Company has the skill to make Harley motorcycles, they must also have the skill to make Kawasaki motorcycles. So there is no initial difference in skills, and yet, there is a lot of trade. Therefore trade must be explained by something else. Maybe that something else is increasing marginal returns, or economies of scale, claim Helpman and Krugman. Instead of having the Kawasaki Company make both kinds of motorcycles for Japan, and having the Harley Motor Company make those both kinds of motorcycles for the US, the natural economic size for each of the two companies is larger. So both of them produce for both continents.
Davis then observes that there is a difference in skill that explains why the Kawasaki Company is better making Kawasakis than the Harley Company (and vice-versa). So the Japanese company has a comparative advantage over the US company in the way they put together the Kawasaki motorcycles and that counts as a small difference in endowments. Small differences in endowments generates big differences in the productivity of Kawasakis. Therefore we can still explain trade as a way in which humans take advantage of differences in specialization.

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