Intra-Industry Trade in Agri-Food Products between Hungary and the EU

We present an analysis of the intra-industry nature of agri-food trade between Hungary and the European Union, following the Association Agreement signed in 1991. A slight growth in intra-industry trade (IIT) is indicated by the Grubel-Lloyd index. However, it is not uniform by product group or EU member state or over time, reflecting different patterns of bilateral integration and an economic restructuring process that is far from complete. Marginal IIT appears to be low, but assumes greater significance when the index is broadened to include vertical as well as horizontal IIT. Accordingly, the structure of the change in agri-food trade between Hungary and the EU during the period is shown to be predominantly either intra-industry of a vertical nature or inter-industry. Both are believed to incur adjustment costs that are higher than with horizontal IIT, but the dominance of vertical IIT suggests that the agri-food industries of Hungary and the EU may be developing in a complementary manner, involving somewhat lower adjustment costs than may have been feared