Horizontal and Vertical Intra-Industry Trade between New and Old Member Countries - Implications for Convergence

The main aim of this dissertation is to provide evidence on the development of bilateral trade relations related to manufacturing industry between Hungary, the Czech Republic, Slovakia, Poland, Slovenia, Estonia, Lithuania and Latvia and the old Member States of the EU (EU 15/EU 25) through focus on the intra-industry trade phenomenon during the period delimited by years 1995, 1999, 2004 and 2007. Based on data from Eurostat Easy Comext database classified according to the Standard International Trade Classification (Rev.3), Grubel-Lloyd indices are computed at the level of 3-digit and 1-digit manufacturing industries (SITC 5, 6, 7, 8) and thereafter aggregate to the level of manufacturing sector as a whole (SITC 5 - 8). Consequently, Greenaway, Hine and Milner methodology is used for disentangling intra-industry trade into its horizontal and vertical components (the latter being further separated into low quality vertical intra-industry trade and high quality vertical intra-industry trade) on the basis of unit value indices. The results show that the share of intra-industry trade in total trade between the countries in focus is increasing during the complete period in all countries and all sectors with SITC 6, 7 and 8 clearly inclining to intra-industry specialization. Altogether, the predominant specialization in high quality vertical IIT is presented, implying so far only slowly advancing convergence steps of the new Member States towards the path of the initial Members of the EU.