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Effects . Journal of Applied Econometrics , 27 ( 2 ): 296 – 321 . Erdey , L. — Pöstényi , A. ( 2014 ): Determinants of Foreign Trade of Hungary: Trade Theory and the Gravity Model

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This paper tests a neo-Heckscher-Ohlin versus a neo-Ricardian framework for explaining vertical intra-industry trade. The study applies panel techniques with instrument variables to analyse trade between ‘old’ EU and 10 Central-East European countries in their post-transition period. Results show country-pair fixed effects to be of high relevance for explaining vertical intra-industry trade. Technology differences are positively, while differences in factor endowment, measured in GDP per capita, are negatively correlated with vertical intra-industry trade, and confirm the relevance of the neo-Ricardian approach. In addition, changing bilateral differences in personal income distribution during the transition of Central-East European countries towards a market economy contribute to changes in vertical intra-industry trade.

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In 1961, Staffan Linder attacked mainstream trade economics by diverging from the generally accepted factor endowments theory and focusing on alternative explanations of why countries trade with each other. He was among the first economists to recognise the growing importance of intraindustry trade and presented his hypothesis that the more similar the per capita income levels of countries, the more they tend to trade with each other. This observation has since become one of the main pillars of modern trade theory. The present paper assesses the empirical validity of the Linder hypothesis in the Visegrad countries. Using a variant of the gravity model, it finds that when controlling for other factors, the Visegrad countries tend to trade more with countries with similar per capita income levels than with significantly richer or poorer countries. This observation is consistent with the Linder hypothesis. OLS regressions, Tobit regressions, and robustness checks all support the hypothesis.

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This paper evaluates income convergence in the European Union, between “old” (EU15) and “new” member states from Central and East Europe (CEE10), and among the countries within these two groups. The GDP per capita convergence should be expected according to the exogenous economic growth model and neoclassical trade theory. The presence of σ-convergence and both absolute and conditional β-convergence is tested for on a sample of 25 European Union countries (EU25). Results confirm the existence of β-convergence of GDP per capita at purchasing power parity among EU25, but not among EU15 and CEE10 countries. σ-convergence has been confirmed among EU25 and CEE10 countries, while GDP per capita has been diverging in the EU15 group of countries. Moreover, the results reveal that recent economic crisis has reversed long-term tendencies and led to income convergence within EU15 and divergence within CEE10. During the crisis, the income differences among the EU25 countries have increased, but the scope and duration of this effect has been limited and has not affected the long term convergence path. However, the obtained long term speed of convergence is significantly lower compared with the previous researches.

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Ambroziak, L. (2012): FDI and Intra-industry Trade: Theory and Empirical Evidence from the Visegrad Countries. International Journal of Economics and Business Research 4(1): 180

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127 83 97 Ambroziak, L. (2012): FDI and intra-industry trade: theory and empirical evidence from the Visegrad Countries. Int. J

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. ( 2016 ): The Economic Consequences of Brexit: A Taxing Decision . OECD Economic Policy Paper, 16. Krugman , P. – Obstfeld , M. – Melitz , M. ( 2015 ): International Trade

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/01426. References Ambroziak, Ł. ( 2012 a): FDI and Intra-Industry Trade: Theory and Empirical Evidence from the Visegrad Countries . International Journal of

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80 3 35 Markusen, J. and Venables, A. J. (1995): Multinational firms and the new trade theory. NBER Working paper, No. 5036

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operating across country borders formed the domain of this embryonic field. To explain the nature of these enterprises, their investments abroad, and the power and influence they wielded, scholars looked to theory in other disciplines. International trade

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