INTRAINDUSTRY TRADE IN THE EUROPEAN DAIRY-INDUSTRY

This paper examines bilateral intra-industry trade (IIT) in the EU dai ry products industry during 1988-92, in order to assess whether both c ountry specific and industry-sperific factors determine this component of trade flows. It is shown that IIT in dairy products between pairs of countries is negatively related to the variables indicating inequal ity between the two countries. Two-way flows are thus more significant , the more similar the countries are. The coefficients for the variabl es describing industry structure suggest that the presence of large fi rms with an absolute cost advantage over smaller firms stimulates IIT- enhancing non-price competition. Concentration in the retail sector wa s found to have a negative effect on IIT, which conflicts with our ori ginal hypothesis.