Intra-Industry Trade between Eastern and Western Europe - The Case of the Motor Car Industry

Abstract: This paper studies and analyses the IIT in motor cars between Eastern and Western Europe. The driving forces and the determinants of IIT are manifold. In this paper the focus lies on the country level determinants and especially the relationship between economic integration, geographical proximity and economic size as determinants of IIT and the per capita GDP as a determinant of the nature of IIT, vertical or horizontal. The empirical findings show that TIIT between Eastern Europe and the EU is at an intermediate and constant level. Looking at the country level the picture is rather different as the patterns of IIT for each country differ significantly. Studying the nature of IIT it shows that HIIT and high quality VIIT are equally represented. The presence of low quality VIIT is extremely low and close to non-existing. The conclusion is drawn that the country level determinants discussed in this paper explains the IIT in trade with motor cars between the EU and Eastern Europe to a large extent but not completely. The empirical findings coincide to some extent with the expectations but not enough to say that there is no need to look for other explanations and driving forces of the IIT. In order to get a full understanding of the IIT and its driving forces it is thus necessary to add more determinants to the analysis and also include the industry level determinants.