Intra-Industry Trade in a Loglinear Model∗

Within the framework of an n-commodity, n-factor, K-country loglinear model with identical Cobb–Douglas production coefficients and identical consumer-expenditure shares across countries, balanced trade, and a pattern of world endowments permitting positive outputs of all commodities in each country, it is shown that, given any mode of aggregating the n commodities into at most n − 1 industrial categories, there exists an allocation of the world factor endowments among the K countries such that each country engages in trade and 100% of each country’s trade is intra-industry trade (i.e., the values of imports and exports balance each other in each aggregate category). It is also shown that in the special case n = m = K = 2, a movement of either production function in the direction of the other causes a greater intensity of trade between the two countries as measured by their export-output ratios.