Intra‐industry trade: A Krugman–Ricardo Model and Data

This paper develops a model of international trade with a continuum of countries and sectors, which combines Ricardian comparative advantage and increasing returns to scale. Trade consists of both inter‐ and intra‐industry trade. The model predicts that the trade‐weighted Grubel–Lloyd index of intra‐industry trade is positively related to the number of exported sectors, and is negatively related to the number of imported sectors. Empirical evidence from a panel of countries using the UN Comtrade database supports these predictions, and the model fits the data better for non‐ OECD than for OECD countries.