INTRA-INDUSTRY TRADE IN EAST ASIA 231 [Asian Economic Journal 1998, Vol. 12 No. 3] 231 [Asian Economic Journal 2005, Vol. 19 No. 2] 231 Study of the Measurement and Determinants of Intra-industry Trade in East Asia* Michael Thorpe Curtin University Zhaoyang Zhang Nagoya University of Commerce and Business and Edith Cowan University The present paper investigates the development of intra-industry trade (IIT) among the East Asian economies over the 1970–1996 period. A dynamic index is used to capture the changes in the structure of trade flows. Based on this approach, IIT is decomposed into horizontal (HIIT) and vertical components (VIIT) and the deter- minants of each are investigated. The results show that both HIIT and VIIT have exhibited increased importance over the sample period in manufacturing. Using pooled panel data the two-way trade in all measures of IIT is found to be posit- ively related to the country-specific variables, such as the market size, exhange rate depreciation, the levels of development and income, and negatively to the geographic proximity of the partners. Economies of scale are seen to have a positive influence on IIT and HIIT, but a negative relationship with VIIT. Al- though the relative openness of a country’s trade regime shows no significant relationship with any form of IIT, a trade imbalance does affect IIT and HIIT flows. The findings have implications for assessing the structural adjustment costs associated with the trade liberalization process as HIIT is associated with demand for variety and relates to two-way trade in goods of similar quality, while VIIT is driven by international specialization and differences in relative factor endowments. Keywords: intra-industry trade, East Asia, Manufacturing. JEL classification codes: F12, F14. * We are grateful to Shinichi Ichimura, Eric D. Ramstetter, William E. James, Hiro Lee, Colin McKenzie, and an anonymous referee for helpful comments and suggestions on earlier versions of the paper. The present study was begun while the second author was visiting the International Centre for the Study of East Asian Development (ICSEAD). He wishes to thank ICSEAD for its hospitality and research support.