Vertical and Horizontal Intra-Industry Trade between the U.S. and NAFTA Partners

the main objectives of this paper are to (a) explain the extent of vertical and horizontal intra-industry trade in the united state’s foreign trade with the north american free trade area (nafta), and (b) identify the industryspecific determinants of vertical and horizontal intra-industry trade. one of the main findings is that the observed increase in intra-industry trade between the united states and nafta is almost entirely due to two-way trade in vertical differentiation. another important finding is that the share of horizontal intra-industry trade has increased significantly during this period, although vertical intra-industry trade continued to be dominant in the u.s.-nafta iit trade. among the industry-specific variables, product differentiation, vertical product differentiation, and product quality differences are found to have a positive effect on all three types of iit shares. industry concentration and industry size are found to have a negative and statistically significant effect on all three types of iit share.