Trade Liberalisation and Adjustment: How Important is Intra-Industry Trade?

This paper focuses on the appropriate measurement of intra-industry trade as indicator of structural adjustment costs. Vertical intra-industry trade is distinguished from horizontal trade on the basis of industrial organisation rather than quality differences. It is argued that existing dynamic versions of the Grubel-Lloyd index reflect horizontal trade only and classify vertical intra-industry trade with inter-industry trade. The paper then proposes a method to distinguish between horizontal and vertical trade and applies these techniques to emerging trade between the EU and the economies of Central and Eastern Europe.