INTRAINDUSTRY TRADE - A HECKSCHER-OHLIN-RICARDO APPROACH

The large volume of intra-industry trade is often cited as a critical element favoring trade theories based on increasing returns and imperf ect competition over those with constant returns and perfect competiti on. The former provide an elegant account of intra-industry trade, whi le the latter, it is often argued, cannot. This paper provides an acco unt of intra-industry trade based squarely on comparative advantage. T he key is to introduce elements of Ricardian trade theory within the H eckscher-Ohlin framework. This is appropriate, as essential characteri stics of intra-industry trade imply that technical differences matter. Increasing returns, in short, are not necessary for intra-industry tr ade.