The dominant paradigm of world trade patterns posits two principal features. Trade between North and South arises due to traditional comparative advantage. Trade within the North, largely intra-industry trade, is based on economies of scale and product differentiation. The paradigm specifically denies an important role for endowment differences in determining North–North trade. We demonstrate that trade in factor services among countries of the North is systematically related to endowment differences and large in economic magnitude. Intra-industry trade, rather than being a puzzle for a factor endowments theory, is instead the conduit for a great deal of this factor service trade.
Davis, D.R. and Weinstein, D.E. (2008), "Chapter 2 Do Factor Endowments Matter for North–North Trade?", Marjit, S. and Yu, E.S.H. (Ed.) Contemporary and Emerging Issues in Trade Theory and Policy (Frontiers of Economics and Globalization, Vol. 4), Emerald Group Publishing Limited, Bingley, pp. 25-47. https://doi.org/10.1016/S1574-8715(08)04002-5
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