Commercial policy and intra-industry trade

This paper constructs a model of intra-industry trade within a multi-product industry whose output range is limited to that obtainable from a particular type of capital. Intra-industry trade is a natural outcome in this structure, without requiring increasing returns to scale or imperfectly competitive markets, and with its pattern determined along traditional (relative factor abundance) lines. The volume of this trade will vary inversely with the level of trade restrictions, as observed empirically. Other policies are then considered for their influence on the range, rather than the level, of domestic production, since the former is the more likely policy objective under these circumstances.