3 2 . Theoretical Causes and Empirical Measures of Inter - Industry

This paper examines the development in the intra-industry trade pattern in two small open economies within the period 1961-1987. We compute Grubel-Lloyd indices and examine both the time pattern, the country pattern, and the product pattern. For both countries the level of intraindustry trade has grown rapidly and product differentiation has increased. However, this process occurred later in Ireland. We confirm the importance of the Linder-hypothesis although it has been of decreasing magnitude. The entry into the European Community did only affect the Danish trade pattern. The Irish policy of attracting direct foreign investment in high technological industries has led to an increase in the intra-industry trade level. However, technological spill overs to domestic firms have been low. Also Denmark suffers from structural problems due to export specialization in low technology products.