Comparative Advantage and the Pattern of Trade Within Industries

This paper investigates empirically one aspect of the vertically differentiated models of intraindustry trade. These models predict that the pattern of trade within an industry is based on comparative advantage rather than being completely random. An empirical model is specified in which the relative quality of two countries' bilateral exports within an industry depends on the relative differences in unit labor requirements. Using a variety of econometric methods, the results suggest that the quality of US manufacturing exports to the UK, Japan, and Germany relative to its imports from these countries is positively and significantly related to the relative differences in value added per worker.