The Skill Content of Inter- and Intra-Industry Trade : Evidence for the Uk

In this paper we investigate the relative importance of net exchanges of skills embodied in intra-industry and inter-industry trade for the UK's trade with some middle income countries. We also separately measure the net exchanges of skills embodied in vertical and horizontal intra-industry trade. We find that there are substantial factor exchanges involved in intra-industry trade, implying that traditional factor content studies may have seriously underestimated the actual factor content of total trade flows. This means that the adjustment effects of intra-industry trade may be greater than is often presumed. We also find, in line with theory, that vertical IIT involves similar net exchanges of labour of different skills to that of inter-industry trade, while horizontal intra-industry trade involves much smaller net exchanges of skills