Specialisation and price competition in the Netherlands and Germany in trade in industrial products
The bilateral trade between Germany and the Netherlands in 1988 and 1992 is investigated empirically. The empirical part of this paper is based upon very detailed trade data. This allows us to aggregate the data to productgroups with two entries. The first entry is a functional partition in semi-manufactured, consumption and investment goods. More important is the second entry which makes a distinction between high-, medium-, and low-tech products. For each productgroup, Revealed Comparative Advantage and specialisation indices are computed, with which the role of comparative (dis)advantages and the influence of specialisation on trade is discussed. Germany turns out to be specialised most, and relatively one-sided, in medium-tech production (and to a lesser extent in high-tech) because of the relatively high level of technical schooling. On low-tech the German position is weak. This is exactly where the Dutch position is strong because of the favourable geographical position and the good infrastructure. So, to a large extent the German-Dutch trade relations are supplementary rather than competitive.
The Dutch-German trade relations do not only depend on the mutual specialisation and comparative (dis)advantages of Germany and the Netherlands but also on those of other countries. The relative position of the Netherlands with regard to other countries is approximated through the competitiveness of the Dutch basket of export goods on the German market. For this, computed price-indices are used as indicators. The same is done for the basket of German export goods on the Dutch market. The price-indices indicate that the price mechanism seems to work: the Netherlands and Germany buy from most of the countries that basket of goods that is the cheapest in that country. Precisely the specialisation in different goods for which there is little mutual competition is an important source for trade. Competition takes place mostly with regard to and between other countries that export to the German and Dutch markets. Here Holland appears to be a stronger competitor for the traditional trade partners (including Germany) on the German market than Germany on the Dutch market. The strongest threat on price-competition comes from Eastern Europe. Since both the Netherlands and Eastern Europe are specialized on low-tech products this means a potential weakening of the Dutch position in this segment.
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