The EU and Intra-industry Trade Overview

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Questions and Answers

What does the Grubel-Lloyd index measure in the context of intra-industry trade?

The level of tariffs imposed by a country

The similarity of a country’s export products to its import products (correct)

The overall trade volume between two countries

The percentage of national market integration

Which country experienced a decline in the growth of intra-industry trade from 1970 to 1990?

Italy (correct)

Germany

Spain

France

What did Balassa find regarding the percentages of intra-industry trade for France from 1970 to 1990?

It increased but was lower than Italy's percentage

It decreased to 40%

It increased to 83% (correct)

It remained constant at 61%

What are non-tariff barriers in the context of international trade?

Regulations or policies other than tariffs that restrict trade Signup and view all the answers

What aspect of international trade did Badinger and Breuss analyze in their research?

The determinants of post-war intra-EU trade growth Signup and view all the answers

What was the primary effect of the Customs Union (CU) on trade among member countries?

Trade expanded rapidly, particularly in traditional commodities. Signup and view all the answers

How did the CU influence industrial specialization among member countries?

There was an increase in intra-industry trade. Signup and view all the answers

Which of the following options demonstrates a consequence of lower domestic varieties in trade?

An increase in foreign product varieties. Signup and view all the answers

What was the anticipated outcome of the CU regarding market characteristics?

Establishment of a single market. Signup and view all the answers

Which statement best describes intra-industry trade as noted in the context of the CU?

It promotes diversity of similar products traded between countries. Signup and view all the answers

Which term represents a potential effect of tariffs imposed within the CU?

Increase in consumer prices for imported goods. Signup and view all the answers

What role do trade barriers play according to the discussions of CU effects?

They can restrict trade and affect variety in the market. Signup and view all the answers

Which characteristic is associated with the expected outcomes of the CU?

Shared regulatory standards among member states. Signup and view all the answers

What was the estimated gain for the UK in value-added manufacturing following its entry into the EU?

1.5% Signup and view all the answers

Which of the following is NOT a reason why large job losses were not observed after the formation of the Customs Union (CU)?

Wider invocation of the safeguard clause Signup and view all the answers

What effect did the Customs Union (CU) have on trade patterns among member countries according to Balassa's findings?

Trade patterns became more similar Signup and view all the answers

Which of the following was identified as a main advantage of the UK's entry into the EU?

Increased competition and efficiency Signup and view all the answers

What was a common misconception about the Customs Union in the years leading up to its formation in 1958?

It would cause job losses in some industries while boosting others Signup and view all the answers

What is intra-industry trade (IIT)?

Simultaneous import and export of products from the same industry Signup and view all the answers

Which aspect of the UK’s trade was found to be small as a result of the Customs Union?

Trade diversion Signup and view all the answers

What factor contributed to the minimal invocation of safeguard clauses during the formation of the Customs Union?

Economic growth during the Golden Age Signup and view all the answers

Study Notes

The European Union (EU) and Intra-industry Trade

The EU's formation was a major event in global trade.
It led to the expansion of trade among member states.
There were concerns about job losses and factory closures when the EU was formed.
The EU formation did not lead to the anticipated industrial specialisation, with countries specializing in different industries.
Trade patterns became more similar, rather than different, between member states.
This is due to intra-industry trade (IIT) which occurs when a country imports and exports products in the same industry.
Balassa (1975) found that bilateral trade patterns between France and Germany became more similar from 1958 to 1970, not more different.

Measuring Intra-industry Trade

The Grubel-Lloyd index of IIT measures how similar a country’s export products are to its import products.
A score of 0% indicates completely different products, while 100% represents identical products.
Balassa (1975) found that IIT levels rose between 1958 and 1970 for Italy and France.
IIT continued to expand in most countries from 1970 to 1990.
The IIT for France reached 83% by 1990.

Reasons for Intra-Industry Trade

The text provides no reasons for the occurrence of IIT.

The Effect of EU entry on the UK

The UK became a member of the EU in 1973.
One study estimated the effects of the EU on UK trade by re-imposing tariffs on UK trade with the EU.
This study found that by 1985, trade between the UK and EU had increased due to trade creation but that trade diversion was minimal.
The UK also experienced external trade creation.
The main benefit, however, was increased competition and efficiency.
The overall gain for the UK was estimated at 1.5% of value-added in manufacturing according to one study.

Adjustment Issues

The EU formation was not as disruptive as many feared.
There were few trade problems and the safeguard clause (temporary import restrictions) was rarely invoked.
This was likely due to the golden age of economic growth, low levels of unemployment, and the time given for adjustment.
Unemployment remained low during the period (1950-1993) and unemployment rates were relatively low in the 1950s and 1960s.
Specialisation processes and lingering trade barriers also contributed to the lack of disruption.

Impact on Industrial Specialisation

The EU was expected to lead to industrial specialization with different countries specializing in different industries.
However, this did not happen, as trade patterns became more similar.
This can be explained by IIT.

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Description

Explore the impact of the European Union's formation on trade dynamics among member states. This quiz delves into intra-industry trade and the implications of trade patterns resulting from the EU, including the findings of Balassa's study. Test your knowledge on key concepts and measures of intra-industry trade.