On the stability of intra-industry trade

This paper presents the novel finding that, in contrast to what the previous literature has shown, two-way intra-industry trade (IIT) in product-country pairs, when looked from a dynamic perspective, is very unstable by using disaggregated trade data of OECD countries. Many products frequently switch among two-way, one-way and zero trade over time. To measure the stability of two-way trade, we propose a measure that we refer to as the “IIT stability index”. Our estimation results using the proposed measure show that two-way trade involving markets of different sizes and long distance are likely to be unstable and primary products are more unstable than manufactured products.