CoPS/IMPACT Working Paper Number G-113

Title: Measures of Intra-Industry Trade as Indicators for Factor Market Disruption

Authors: Peter B. Dixon and Jayant Menon


Intra-industry trade (IIT) related concepts have often been used as indicators of the extent to which trade growth can be accommodated without factor market disruption. The most commonly used indicators have been movements in the Grubel-Lloyd (GL) index. However, GL-based indicators are sometimes misleading and, at best, they give qualitative information only. We develop two other indicators. The first involves computing changes in IIT. While this method provides a precise measure of the contribution of growth in IIT to total trade (TT) growth, it tends to overestimate the contribution of non-disruptive trade growth. This problem is overcome by our second indicator, dynamic intra-industry trade or matched changes in trade. All our indicators are illustrated with data for 133 Australian manufacturing industries.

JEL classification: F32, F17

Keywords: intra-industry trade, matched trade, factor market disruption.

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