This paper reviews the experience of the Latin American Free Trade Association and the Central American Common Market with intra-industry trade in manufacturing, entailing the exchange of differentiated products, and considers the welfare effects of this trade. The paper further examines intra-industry specialization between developed and developing countries that involves the importation of labor intensive product varieties and parts, components, and accessories into the former group of countries from the latter. Finally, recommendations are made for policy measures that may be taken to encourage intra-industry specialization, including regional integration and multi-lateral trade liberalization.
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