European Economy. Economic Papers. Germany's growth performance in the 1990's

Figure 3.7: Revealed comparative advantage of technology content
Source: Comext data base, own calculations EU
Figure 3.8: Revealed comparative advantage of factor content
Source: Comext data base, own calculations
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
Germany
France
Netherlands
Italy
UK
Unskilled labour
Skilled labour
Physical capital
1990
1995
2000
data order
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
Germany
France
Netherlands
Italy
UK
Standard
Intermediate
High
1990
1995
2000
data order

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Intra-industry trade
Beyond looking at the specialisation profile of Germany the question arises to what extent
Germany is fully taking advantage of the growth possibilities offered by international trade. One
way to look at this issue is the analysis of the relative share of intra-industry trade. Intra-
industry trade is defined as the mutual exchange of products within the same sector and is
distinguished from inter-industry trade, in which countries trade the products of different
sectors. Intra-industry trade makes up most of the trade-flows between advanced economies and
cannot be explained by standard trade theory of comparative advantage. Instead, it indicates the
presence of economies of scale. If all countries specialise in a narrow range of products that are
then traded they can reduce production costs per unit and offer a larger variety of products to
their consumers. Empirical evidence suggests that there is a positive relationship between
growth rates and measures of intra-industry trade.
40
Next to economies of scale, intra-industry
trade has been linked also to the transfer of technology and greater technological innovation, the
key ingredients of modern growth theory.
Figure 3.9 shows for some European countries the Grubel-Lloyd index, which measures the
relative share of intra-industry trade as a share of total trade (with a theoretical maximum value
of 1).
41
The figure reveals that intra-industry trade is increasing in all countries. It also reveals
that Germany is lagging behind other countries in intra-industry participation except Italy. Other
countries that had relatively higher growth rates during the last decade, such as the Netherlands,
France, and the UK both had higher starting levels of intra-industry trade and, potentially more
important, higher relative increases, which 
à priory
would mean a higher additional exploitation
of scale economies.