Why do countries engage in Intra-Industry trade? Explain Intra-Industry trade in horizontally and vertically differentiated Commodities

Countries engage in intra-industry trade to benefit from specialization, economies of scale, and product differentiation.

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Intra-industry trade occurs when a country simultaneously exports and imports similar types of goods within a specific industry.

Horizontally Differentiated Commodities:
In this context, products within the same industry are distinguished by non-price factors, such as quality, design, or branding. Countries engage in intra-industry trade with horizontally differentiated commodities to cater to diverse consumer preferences. For example, in the automobile industry, one country might specialize in producing high-performance sports cars, while another focuses on fuel-efficient and environmentally friendly vehicles.

Vertically Differentiated Commodities:
Here, products within the same industry are differentiated based on their quality or features. Intra-industry trade in vertically differentiated commodities allows countries to exploit their comparative advantages at different quality levels. For instance, in the electronics industry, one country may excel in producing high-end, advanced smartphones, while another specializes in more affordable, basic models.

In summary, intra-industry trade enables countries to leverage their unique strengths in producing differentiated goods, leading to increased efficiency, market access, and overall economic welfare.