Quality Differentiation, Vertical Disintegration and The Labour Market Effects of Intra-Industry Trade

The thesis offers a new treatment of the labour market effects of international trade building on recent developments in the literature on intra-industry trade (IIT) stressing the importance of vertical IIT. The central idea is that heterogeneity of traded goods plays a crucial role both in terms of quality differentiation and vertical fragmentation of production. The basic concepts are presented in the introductory chapter. The second chapter presents an econometric study which shows that the role of factor intensity in IIT requires that different forms of IIT are properly distinguished. In the third chapter the evaluation of the impact of trade on labour markets is studied in a model in which IIT is explained on Heckscher-Ohlin principles. Applying the model to trade between Italy and less advanced countries and inferring the factor content of intra-industry trade from the inter-sectoral relationship between factor intensity and average unit values of exports, I find that the labour market effects of intra-industry trade add significantly to the estimated factor market impact of trade. Finally, fourth chapter is a study of Outward Processing Trade flows between the EU and Central Eastern European countries: results suggest that the labour market effects of intra-industry trade flows deriving from the vertical disintegration of production are significant.