Marginal Intra-Industry Trade and Adjustment Costs in the Hungarian Food Industry

Recent developments in intra-industry trade (IIT) literature focus on the relationships between IIT and adjustment costs associated with changes in trade pattern. The effects of trade liberalisation depend, inter alia, on whether trade is of an inter-industry or intra-industry nature. The belief that IIT leads to lower costs of factor market adjustment, particularly for labour, gives rise to the smooth-adjustment hypothesis Hungarian agricultural trade was liberalised via WTO agreement and some regional trade integration agreement (Association Agreement, CEFTA). It is reasonable assume that these partial trade liberalisation should have an effect on trade pattern and employment changes. The aim of the paper is to identify the effects of partial trade liberalisation on adjustment costs in Hungarian food industry employing recent developments in the IIT literature. The structure of Hungary's food trade expansion over the transition period 1992-2002 and its implications for labour-market adjustment is examined. An econometric analysis of trade and employment data suggests that changes in domestic consumption and productivity have significant influence on employment changes. But our results do not provide support for the smooth-adjustment hypo thesis of intraindustry trade.