The Intra-Industry Trade of the Czech Republic in the Economic Transition

Abstract

In this paper, we provide an overview of the development of Czech trade and its structure and investigate the nature of Czech intra-industry trade (IIT) and its labor market determinants. We evaluate the evolution of the Czech trade in the context of other transition economies--the Central European Free Trade Agreement (CEFTA) countries, the Baltic countries, and the Commonwealth of Independent States (CIS). In our analysis, we use decomposition of IIT into vertical and horizontal components. The Czech Grubel-Lloyd index (GLI) of 75 percent at the SITC two-digit level is still somehow lower than the values for comparable EU countries, but this difference is not high. This indicates a relatively high level of Czech integration into European and world economies. This result is supported by the comparison of IIT in the trade between the European Union and seven European transition economies undertaken by Fidrmuc (2000), showing that the Czech Republic has the highest IIT out of all these countries. Also, the structure of Czech IIT with respect to its horizontal and vertical elements is comparable with the structure of IIT in EU countries. The results of our cross-industry analysis of labor market determinants of IIT show that qualitative characteristics of the labor force are statistically significant predictors for IIT after controlling for time changes and character of industry.

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