Specialisation across Varieties within Products and North-South Competition
There has been repeated evidence in the trade literature that international specialisation is taking place within products, across varieties, rather than across products or across industries. Using a new database which draws on United Nations COMTRADE data covering trade between 1995 and 2004 for more than 200 countries and 5,000 products, we systematise this evidence and ask what are the precise patterns and determinants of such specialisation between North and South. Although the two groupings of countries are quite similar when specialisation is considered across broadly defined sectors, they are very dissimilar when the differentiation of products, reflected in differences in unit values across varieties, is taken into account. We systematise Schott’s relation between the unit values of varieties shipped and the level of development of the exporter. Lastly, we use a gravity equation accounting for the market positioning of varieties and for the direction of trade in order to shed light on the determinants of trade in varieties. We observe that supply and demand related determinants contemplated in the literature offer a coherent framework in which Linder’s hypothesis combines with factor endowments. Overall, our analysis confirms that advanced economies are maintaining their advantage in the upper segment of product markets: North and South are not competing head on within industries. However, this conclusion does not exclude a likely impact on the advanced economies’ labour markets of a systematic repositioning on up-market varieties.
Product trade; export unit values; vertical differentiation; international trade; specialization; competition; BACI
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