Intra-industry trade, fragmentation and export margins: An empirical examination of sub-regional international trade

This study contributes to the existing empirical investigation of international trade by providing new evidence of intra-industry trade using sub-regions within a nation. We calculate the Grubel–Lloyd intra-industry trade index for 41 Japanese regions with Korea during the period from 1988 to 2006. In sub-regional intra-industry trade regression models, we introduce extensive and intensive margins of prefecture exports as new explanatory variables. We find that a rise in sub-regional intra-industry trade is driven by the introduction of a new variety of exports, while intra-industry trade is discouraged by an increase in the trade value of products that are already exported.

► We provide new evidence of intra-industry trade using sub-regions within a nation.
► In IIT regression, we introduce export margins as new explanatory variables.
► IIT increases by the introduction of a new variety of exports.
► IIT decreases by an increase in the trade value of products already exported.