REGIONAL COOPERATION AND ECONOMIC INTEGRATION

PART I:
products while Bosnia and Herzegovina and Croatia do not. A common characteristic for
all countries is the presence of comparative advantages in low value added sectors.
2.4. Intra-industry trade and trade specialization
After comparative advantages were analyzed, the trade patterns concerning the realized
economic benefits from international trade are explored. For this purpose horizontal and
vertical specialization are analyzed. Horizontal intra-industry trade occurs when similar
products are simultaneously exported and imported, mainly due to product differentiation.
Vertical intra-industry trade represents the simultaneous export and import of goods within
one industry but where the products belong to different stages of production. Empirical
research of intra-industry trade began in the mid-1960s. The first results were exposed
by Balassa (1965). The most well known work on intra-industry trade was made by
Grubel and Lloyd (1975). This research was then followed by what we know today as the
theory of intra-industry trade (Dixit and Stiglitz 1977; Krugman 1980, 1981; Lancaster
1980; Helpman 1981). The role and significance of intra-industry trade in the process of
globalization and integration of transition economies on international markets is becoming
more important than previously. Research in the field of international trade shows that
intra-industry trade is the fastest growing segment in the international trade of transition
economies (Aturupane, Djankov and Hoekman 1997; Kaminski and Ng, 2001). The key
question is what happens with the comparative advantages and utility in international
trade. Namely, we can ask does an increase in the integration with international markets
and growth in intra-industry trade specialization correspond to changes in comparative
advantages towards higher value added sectors
The most commonly used indicator for the measuring of the level of specialisation in intraindustry
trade is the Grubel-Lloyd index. Empirical results of the calculation of the Grubel-
Lloyd index for selected transition south-eastern European countries are shown in table 3.
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