Developing Countries in Light of Intra-Trade

This paper examines one possible explanation for intra-trade flows derived in light of an international environment characterized by product differentiation, economies of scale, and monopolistic competition. The analysis may be structured within a more general formulated Heckscher-Ohlin framework, in which intra-trade flows may be explained through product differentiation while conventional explanations apply to inter-industry trade (see e.g. Helpman (1981), (1984), Kierzkowski (1984)). The model analyses the relationship between the total volume of trade, the share of intra-trade on cross-country differences in relative factor endowments and relative country size in a simple integrated two country world.