Vertical intra-industry trade and product quality: the case of South Korea, 1996–2003

This paper contributes to empirical research of intra-industry trade, especially vertical intraindustry trade (VIIT), by two aspects. Firstly, we separate VIIT into higher-export-price VIITand lower-export-price VIIT. Secondly, we give attention to R&D and FDI stock in explaining VIIT determinants. Applied to panel data representing South Korea’s bilateral trade with 15 OECD countries and Taiwan from 1996 through 2003, this alternative makes anintricate understanding of the VIIT determinants possible. Main empirical findings are that South Korea’s R&D investments focus on price competitiveness while its inward FDI seeks efficiency and its outward FDI seeks a market in this period.