THE FACTORS AFFECTING THE INTRA INDUSTRY TRADE BETWEEN THE UNITED KINGDOM AND THE UNITED STATES: AN ARDL MODEL APPROACH

Abstract

This study is an analysis of the intra industry trade between the United Kingdom and the United States of America in the manufacturing sector. The analysis comprises of the years between 1993 and 2019. The factors influencing the intra industry trade and their impacts are examined. With the help of ARDL approach, cointegration between the variables is tested. According to the results, foreign direct investment, per capita income difference and trade openness are affective in the long run, but in the short run, per capita income difference, GDP difference and trade orientation are affective. Per capita income difference has an impact on the intra industry trade both in the short run and in the long run, demonstrating the Linder’s Theory of Overlapping Demands which proposes that the international trade will be stronger between countries with similar per capita income levels.