JOURNAL OF ECONOMIC DEVELOPMENT Volume 24, Number 2, December 1999 79 Determinants of Intra-Industry Trade Between Developing Countries and the United States Don P. Clark and Denise L. Stanley * 1 This study identifies country and industry-level determinants of intra-industry trade (IIT) between the United States and developing countries. IIT is found to decline with greater differences in relative factor endowments. Economic size and trade orientation of the developing country influence IIT in a positive way. Distance exerts a negative effect on IIT. Results show IIT occurs in nonstandard, made-to-order, vertically differentiated, labor intensive products produced by large globally integrated industries. No support is provided for the role of scale economies in determining North-South IIT. Theoretical and empirical models of North-South trade should focus on sources of IIT related to country characteristics, vertical product differentiation based on quality differences, the degree of product standardization, and labor cost differences between the North and South. I. Introduction Considerable research effort has been devoted to identifying determinants of intra- industry trade - the simultaneous import and export of goods falling under the same industry classification. Studies using a cross-section of industries have emphasized determinants of IIT relating to scale economies, product differentiation, and imperfect competition. 1 A second group of studies has identified country characteristics that influence the extent of IIT. 2 Included here are per capita income, country size, transactions cost, and trade orientation. Other studies have attempted to jointly evaluate these influences using a multi-country multi-commodity framework. 3 Most empirical and theoretical research has focused on two-way trade between industrial nations. Theoretical models are based on scale economies, imperfect competition, and horizontal product differentiation, where each industry produces a variety of goods with similar factor intensities and distinguishable product attributes. 4 Theoretical models * Department of Economics, The University of Tennessee, Knoxville, TN 37996-0550, respectively. We are grateful to W. Charles Sawyer and two reviewers for providing many helpful comments. The University of Tennessee CBA Scholarly Research Grant Program provided support for this project. 1. See Greenaway, Hine, and Milner (1995), Clark (1993), Lundberg (1992), Ray (1991), Hamilton and Kniest (1991), Lundberg (1982), Toh (1982), Caves (1981), and Pagoulatos and Sorensen (1975). 2. See Stone and Lee (1995), Balance, Forstner and Sawyer (1992), Globerman and Dean (1990), and Helpman (1987). 3. See Bergstrand (1990), Balassa and Bauwens (1987), Balassa (1986), and Loertscher and Wolter (1980). 4. See Ethier (1982, 1979), Helpman (1981), Krugman (1983, 1981, 1980, 1979), Lancaster (1980), Dixit and Norman (1980), and Dixit and Stiglitz (1977).