DETERMINANTS OF INTRAINDUSTRY TRADE - A SENSITIVITY ANALYSIS

This paper examines the robustness of determinants of IIT to changes i n the set of included variables and to measurement errors. On applying extreme bounds analysis (EBA) on Swedish IIT, it is found that most v ariables are sensitive to changes in the selected control variables. W hen examining the effects of errors of measurement and when only robus t variables are included in the model, the estimated coefficients are bounded although they are unbounded when more variables are included. It is also found that the proxy-variables for product differentiation need to be of much higher quality than actually seems to be the case, if we are to ensure that the signs of the proxy-variables correspond t o the signs of the 'true' variables.