FIW Working Paper N 104 March Country-specific determinants of horizontal and vertical intra-industry agri-food trade of the Visegrad Countries

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1 FIW Worng Paer FIW Worng Paer N 104 March 2013 Country-secfc determnants of horzontal and vertcal ntra-ndustry agr-food trade of the Vsegrad Countres Attla JAMBOR 1 Abstract The artcle analyses atterns and country-secfc determnants of Vsegrad Countres (VC) agr-food trade wth the Euroean Unon. Lterature focusng on the country-secfc determnants of vertcal and horzontal ntra-ndustry trade s rather lmted and those analysng agrcultural (or agr-food) trade are extremely rare. Therefore, the aer sees to contrbute to the lterature by coverng latest theory and data avalable on the toc to rovde u to date results and suggestons. Moreover, t sees to dentfy the determnants of horzontal and vertcal ntra-ndustry trade of the Vsegrad Countres after EU accesson. Results suggest that agr-food trade of the Vsegrad Countres s manly nter-ndustry n nature but ntra-ndustry trade s domnated by vertcal elements. Results verfy that determnants of horzontal and vertcal IIT dffer and suggest that economc sze s ostvely, whle dstance s negatvely related to both sdes of IIT. However, the relatonsh between vertcal IIT and dfferences n factor endowments as well as FDI s ambguous. JEL: Keywords: F14 Vsegrad Coutnres, ntra-ndustry trade, determnants Author 1 Corvnus Unversty of Budaest, Hungary Emal: attla.jambor@un-corvnus.hu FIW, a collaboraton of WIFO ( ww ( and WSR (

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3 Country-secfc determnants of horzontal and vertcal ntra-ndustry agr-food trade of the Vsegrad Countres Attla JAMBOR Assstant rofessor, Corvnus Unversty of Budaest, Hungary E-mal: Paer reared for the 6 th FIW Research Conference n Internatonal Economcs, Venna, Austra, 22 February 2013 Coyrght 2013 by [Attla Jambor]. All rghts reserved. Readers may mae verbatm coes of ths document for non-commercal uroses by any means, rovded that ths coyrght notce aears on all such coes. The author gratefully acnowledges fnancal suort from the Hungaran Scentfc Research Fund No Changes and determnants of Central and Eastern Euroean agrcultural trade. Abstract The artcle analyses atterns and country-secfc determnants of Vsegrad Countres (VC) agr-food trade wth the Euroean Unon. Lterature focusng on the country-secfc determnants of vertcal and horzontal ntra-ndustry trade s rather lmted and those analysng agrcultural (or agr-food) trade are extremely rare. Therefore, the aer sees to contrbute to the lterature by coverng latest theory and data avalable on the toc to rovde u to date results and suggestons. Moreover, t sees to dentfy the determnants of horzontal and vertcal ntra-ndustry trade of the Vsegrad Countres after EU accesson. Results suggest that agr-food trade of the Vsegrad Countres s manly nter-ndustry n nature but ntra-ndustry trade s domnated by vertcal elements. Results verfy that determnants of horzontal and vertcal IIT dffer and suggest that economc sze s ostvely, whle dstance s negatvely related to both sdes of IIT. However, the relatonsh between vertcal IIT and dfferences n factor endowments as well as FDI s ambguous. Key words: Vsegrad Coutnres, ntra-ndustry trade, determnants JEL code: Emrcal Studes of Trade - F14 1

4 Introducton Agr-food trade of the New Member States (NMS) has changed remarably durng the revous decade. One of the major factors contrbutng to such changes was EU accesson, by whch former trade barrers have dmnshed. The artcle analyses the atterns and determnants of Vsegrad Countres 1 (VC) agr-food trade wth the Euroean Unon by usng the theory of ntra-ndustry trade. There s a wde range of lterature generally analysng ntrandustry trade atterns but one mortant shortcomng of such lterature s that t gnores the dstncton between horzontal and vertcal IIT and gnores the fact that they may have dfferent determnants. Lterature focusng on the country-secfc determnants of vertcal and horzontal ntra-ndustry trade s rather lmted and those analysng agrcultural (or agrfood) trade are extremely rare. The aer sees to contrbute to the scant lterature of the feld n two ways. Frst, t covers latest theory and data avalable on the toc to rovde u to date results and suggestons. Second, t sees to dentfy the determnants of horzontal and vertcal ntrandustry trade of the Vsegrad Countres after EU accesson. In order to meet these ams, the artcle s structured as follows. The frst art rovdes an overvew of the lterature and recent emrcal studes of the toc, whle the second summarses methods of horzontal and vertcal IIT measurement. The thrd art descrbes some basc atterns of horzontal and vertcal ntra-ndustry agr-food trade between Vsegrad Countres and the Euroean Unon, followed by the resentaton of hyotheses and emrcal results. The last art concludes. Lterature revew Tradtonal trade theores assume constant returns to scale, homogenous roducts and erfect cometton and am to exlan nter-ndustry trade based on comaratve advantages. However, a sgnfcant orton of the world trade snce the 1960s too the form of the ntrandustry trade rather than nter-ndustry trade. Consequently, tradtonal trade models roved to be nadequate n exlanng ths new trade attern as there s no reason for develoed countres to trade n smlar but slghtly dfferentated goods. 1 Czech Reublc, Hungary, Poland and Slovaa 2

5 In the 1970 s, an ncreasng amount of research dealt wth ths ssue, rovdng a theoretcal bass for ntra-ndustry trade (IIT), defned as the smultaneous exort and mort of roducts belongng to the same statstcal roduct category. The frst synthessng model of IIT was develoed by Helman and Krugman (1985), creatng a framewor for ntra-ndustry trade theory by usng the Chamberln monoolstc cometton theory. Ths model combnes monoolstc cometton wth the Hecscher-Ohln (HO) theory, ncororatng factor endowments dfferences, horzontal roduct dfferentaton and ncreasng returns to scale. It has onted out that comaratve advantages drve nter-ndustry trade through secalsaton, whle economes of scale drve ntra-ndustry trade. Accordng to the oneerng wor of the Falvey (1981), notons of horzontal and vertcal roduct dfferentaton have come nto exstence n the lterature. Horzontal IIT refers to homogenous roducts wth the same qualty but wth dfferent characterstcs, whle vertcal IIT means roducts traded wth dfferent qualty and rce. Followng the author s wor, three tyes of blateral trade flows may occur between countres: nter-ndustry trade, horzontal IIT and vertcal IIT. Horzontal dfferentaton s more lely between countres wth smlar factor endowments, whle accordng to Falvey and Kerzows (1987), vertcally dfferentated goods occurs because of factor endowment dfferences across countres. As the authors suggest, the amount of catal relatve to labour used n the roducton of vertcally dfferentated good ndcates the qualty of the good. Consequently, hgher-qualty roducts are roduced n catal abundant countres whle lower-qualty roducts are roduced n labour abundant countres. Thereby vertcal IIT occurs as the catal abundant country exorts hgher-qualty varetes as well as the labour abundant country exorts lower-qualty roducts. It s therefore redctable that the share of vertcal IIT wll ncrease as countres ncome and factor endowments dverge. Many studes have analysed the determnants of ntra-ndustry trade n general (e.g. Letão and Faustno 2008, Raseh 2008, Wang 2009), though just a lmted amount of lterature s focused on the country-secfc determnants of vertcal and horzontal ntra-ndustry trade. Greenaway et al. (1994) were the frst to analyse country-secfc factors of horzontal and vertcal ntra-ndustry trade n the UK and found that vertcal IIT s more mortant n the UK than horzontal IIT and that the nter-country attern of vertcal IIT s systematcally related to a range of exlanatory varables. Aturuane et al. (1999) searched for the determnants of horzontal and vertcal ntra-ndustry trade between Eastern Euroe and the Euroean Unon and showed that the determnants of the two tyes of IIT are lely to dffer, wth vertcal IIT 3

6 beng more a reflecton of endowment or technology-based factors, and horzontal IIT beng more deendent on factors such as scale economes and merfect cometton. Kandogan (2003) analysed IIT of transton countres and concluded that varables from the ncreasng returns trade theory, such as scale economes, smlarty of ncome levels, and number of varetes roduced lay mortant roles n horzontal IIT, whereas factors such as comaratve advantage or dssmlarty n ncome levels are more related to vertcal IIT. Zhang and L (2006) nvestgated country-secfc factors of ntra-ndustry trade n Chna s manufacturng and underlned that the more countres dffer n relatve country sze and relatve factor endowments, the less lelhood there s for IIT and horzontal IIT. They also emhassed that dfference between countres n relatve factor endowments lead to more nter-ndustry trade, whch n turn suresses IIT and vertcal IIT. Fertő (2005, 2007) analysed Hungaran ntra-ndustry agr-food trade atterns wth the EU15 and confrmed the comaratve advantage exlanaton of vertcal IIT, whle stressng that usng a measure of IIT that reflects the level of trade roduces better regresson results than those based on the degree or share of IIT. Caetano and Galego (2007) were searchng for the determnants of ntra-ndustry trade wthn an enlarged Euroe and found that determnants of horzontal and vertcal IIT dffered, although both had a statstcally sgnfcant relatonsh wth a country s sze and foregn drect nvestment. Turcan and Ates (2010) nvestgated for the determnants of IIT n the U.S. Auto-Industry and besdes confrmng that determnants of horzontal and vertcal IIT dffer, showed that vertcal IIT s ostvely assocated wth average maret sze, dfferences n maret sze, dfferences n er cata GDP, outward FDI and dstance, whle t s negatvely correlated wth the blateral exchange rate varable. Letao (2011) examned ntra-ndustry trade atterns n the Portugese automoble sector and concluded that ntra-ndustry trade occured more frequently among countres that were smlar n terms of factor endowments as well as onted out that no ostve statstcal assocaton exsted between HIIT and Hecscher-Ohln varables. Ambroza (2012) nvestgated the relatonsh between FDI and IIT n the Vsegrad countres and found that FDI stmulated not only VIIT n the regon but also HIIT. 4

7 Measurng horzontal and vertcal IIT Several methods exst to measure ntra-ndustry trade. Frst, the classcal Grubel-Lloyd (GL) ndex has to be mentoned, whch s exressed formally as follows (Grubel and Lloyd, 1975): X M GL 1 (1) ( X M ) where X and M are the value of exorts and morts of roduct category n a artcular country. The GL ndex vares between 0 (comlete nter-ndustry trade) and 1 (comlete ntrandustry trade) and can be aggregated to level of countres and ndustres as follows: GL n 1 GL w where w ( X n ( 1 M ) X M ) where w comes from the share of ndustry n total trade. However, several authors crtcsed the GL-ndex, for fve man reasons: (1) aggregate or sectoral bas, (2) trade mbalance roblem, (3) geograhcal bas, (4) narorateness to searate horzontal and vertcal ntra-ndustry trade (HIIT and VIIT), (5) narorateness for treatng dynamcs. Detaled dscusson of these roblems but the fourth would dstract from the basc am of ths aer; a comrehensve revew can be found n Fertő (2004). The fourth roblem of the GL ndex s gven by the jont treatment of horzontal and vertcal trade. Lterature suggests several ossbltes for solvng ths roblem. Among these solutons, the most wdesread one s based on unt values develoed by Abd-el Rahman (1991). The underlyng resumton behnd unt values s that relatve rces are lely to reflect relatve quanttes (Stgltz, 1987). Accordng to the wdesread vew n the lterature based on ths resumton, horzontally dfferentated roducts are homogenous (erfect substtutes) and of the same qualty, whle vertcally dfferentated roducts have dfferent rces reflectng dfferent qualty (Falvey, 1981). Accordng to the method of Greenaway et al. (1995), a roduct s horzontally dfferentated f the unt value of exort comared to the unt value of mort les wthn a 15% range at the fve dgt SITC level. If ths s not true, the GHM method s talng about vertcally dfferentated roducts. Formally, ths s exressed for blateral trade of horzontally dfferentated roducts as follows: X UV 1 UV 1 M where UV means unt values, X and M means exorts and morts for goods and ά=0.15. If ths equaton s not true, GHM method tals about vertcally dfferentated roducts. (2) (3) 5

8 Furthermore, Greenaway et al. (1994) added that results comng from the selecton of the 15% range do not change sgnfcantly when the sread s wdened to 25%. Blanes and Martín (2000) develoed the model further and defned hgh and low VIIT. Accordng to ther vews, low VIIT means that the relatve unt value of a good s below the lmt of 0.85, whle unt value above 1.15 ndcates hgh VIIT. Based on the logc above, the GHM ndex comes formally as follows: GHM j X M After calculatng the FF ndex, trade flows can be classfed as follows: horzontal twoway trade, vertcal two-way trade and one-way trade. Accordng to Fontagné and Freudenberg (1997), the FF ndex tendentously rovdes hgher values comared to GL-tye ndces (le the GHM ndex) as equaton 5 refers to total trade, treated before as two-way trade. The authors suggest that FF ndex rather comlements than substtutes GL-tye ndces as they have measured the relatve weght of dfferent trade tyes n total trade. In concluson, they found that the value of GHM ndex s usually between the GL and FF ndex. All the ndces shown above measure the share of ntra-ndustry trade nstead of ts level whch s a much better ndex as Nlsson (1997) suggests. Accordng to the author, IIT should be dvded by the number of roduct grous n total trade, resultng n an average IIT by 6 X M j X M where X and M stands for exort and mort, resectvely, whle dstngushes horzontal or vertcal ntra-ndustry trade, j s for the number of roduct grous and s for the number of tradng artners ( = 1,... n). There s another method n the lterature to dstngush HIIT and VIIT. Fontagné and Freudenberg (FF method, 1997) categorze trade flows and comute the share of each category n total trade. They defned trade to be "two-way" when the value of the mnorty flow reresents at least 10% of the majorty flow. Formally: Mn( X, M) 10% (5) Max( X, M) If the value of the mnor flow s below 10%, trade s classfed as nter-ndustry n nature. If the ooste s true, the FF ndex comes formally as: FF X M j X M j (4) (6)

9 roduct grou. Alyng ths logc to horzontal and vertcal IIT, the Nlsson ndex s formally exress as: N j X M n X M where the numerator equals to that of the GHM ndex, whle n refers to the number of roduct grous n total trade. Nlsson argues that hs measure rovdes a better ndcaton of the extent and volume of IIT than GL-tye ndces and s more arorate n cross-country IIT analyses. In order to erform calculatons based on the above equatons, the artcle uses the Eurostat nternatonal trade database usng the HS6 system (sx dgt breadown) as a source of raw data. Agr-food trade s defned as trade n roduct grous HS 1-24, resultng n 964 roducts usng the sx dgt breadown. The artcle wors wth trade data for the erod due to data avalablty. In ths context, the EU s defned as the member states of the EU27. (7) Pattern of VC horzontal and vertcal IIT Usng the above methods, horzontal and vertcal ntra-ndustry trade were calculated for agrfood trade between VC and EU27 for the erod Table 1 shows that Vsegrad Countres agr-food ntra-ndustry trade s manly vertcal n nature and shows sgns of mnor fluctuatons n tme. It was just n 2009 when all countres analysed exerenced a slght ncrease n IIT but ths change dd not seem to reman ersstent. Countres concerned do not dffer sgnfcantly n ther agr-food IIT trade atterns. One should also note the low values for total IIT n all cases, ndcatng that nter-ndustry trade revals n VC agr-food trade wth EU27 between 2005 and In general, the share of VIIT s sgnfcantly hgher than the share of HIIT and agr-food trade of the Vsegrad Countres s domnated by nter-ndustry trade atterns, whch s consstent wth the fndngs of revous research (Ambroza, 2012). 7

10 Table 1 Horzontal and vertcal agr-food IIT n the Vsegrad Countres n * Year Czech Reublc Hungary Poland Slovaa V H T V H T V H T V H T * Based on the GHM-method. V=vertcal, H=horzontal, T=total. Source: Own calculatons based on Eurostat (2012) However, the share of vertcal IIT n total IIT n the VC shows a steadly decreasng trend, ndcatng that less qualty-based roducts are traded n the EU27 (Fgure 1). The hghest decrease can be seen n Slovaa, whle the lowest n the Czech Reublc. Such mnor changes do not ndcate any sgnfcant trends n trade structures, though. 0,90 Fgure 1 The share of vertcal IIT n total IIT between VC and EU27, * 0,85 0,80 0,75 0,70 VC CZ HU PL SK 0, * Based on the GHM-method. Source: Own calculatons based on Eurostat (2012) 8

11 Fgure 2 rovdes further nsghts to the analyss above. Usng the dea of Blanes and Martín (2000), VIIT was searated nto vertcally hgh and low categores, suggestng dfferent qualtes of trade. Tang nto account the geograhcal atterns of IIT n the Vsegrad Countres, t becomes evdent that low vertcal IIT domnates agr-food trade, whle the share of hgh vertcal IIT vares between 27-37%. Smlar results can be obtaned f ths attern s analysed n tme. The overall cture s qute unfavourable to the VC as the trade of low qualty roducts s usually assocated wth low rces and unt values, suggestng structural roblems n agrculture (Ambroza, 2012) Fgure 2 The attern of IIT n agr-food roducts between VC and EU27, , (%)* 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% CZ HU PL SK VC Horzontal Hgh vertcal Low vertcal * Based on the GHM-method. Source: Own calculatons based on Eurostat (2012) In short, IIT s manly of a vertcal nature n the VC, suggestng the exchange of roducts of dfferent qualty. Moreover, t seems that the majorty of agr-food trade between VC and ts EU artners has stll remaned one-way (or nter-ndustry) n nature, suggestng comlementarty rather than cometton n roducton (Fertő, 2007). 3. Determnants of VC horzontal and vertcal IIT As descrbed n the lterature revew, theory argues that HIIT and VIIT determnants dffer. Ths may exlan why econometrc analyses havng total (horzontal and vertcal) IIT as ther deendent varable may be ms-secfed. Therefore, the determnants of HIIT and VIIT wll 9

12 now be nvestgated searately for the case of Vsegrad Countres agr-food trade wth EU27. The balanced anel data set contans VC trade wth each and every EU member state for sx years, resultng n 648 observatons. As the majorty of lterature regresses a measure of IIT on a range of ossble exlanatory varables wthout any redefned method, ths artcle uses anel estmaton technques, caturng both cross-sectonal and tme-deendent secal effects. Therefore, consstent wth the lterature on the determnants of IIT, hyotheses are as follows: H1. Dfference n factor endowments between tradng artners ncreases (decreases) the share of vertcal (horzontal) IIT n total trade. The dfference n factor endowments s usually measured by nequalty n er cata GDP, n lne wth the model develoed by Falvey Kerzows (1987). Lnder (1961) consders that countres wth smlar demands have smlar roducts, consequently vertcal tye trade ncreases wth dfferences n relatve factor endowments. Factor endowments are roxed by the logarthm of absolute value of the dfference n er cata GDP between Vsegrad Countres and ther tradng artners (lndgdpc), whch s exected to be ostvely related to the share of vertcal IIT. LnDGDPC s measured n PPP n current nternatonal dollars and data comes from the World Ban WDI database. H2. The smaller the dfference n economc sze of the two artner economes, the hgher the exected IIT n ther trade. The larger the nternatonal maret, the larger the oortuntes for roducton of dfferentated ntermedate goods and the larger the oortuntes for trade n ntermedate goods. The logarthm of the absolute dfference n the average GDP of tradng artners s used as a roxy for the average sze of marets. LnAVGDP s measured n PPP n current nternatonal dollars and the source of data s also the World Ban WDI database. A ostve sgn for both horzontal and vertcal IIT s exected. 10

13 H3. The larger the share of foregn drect nvestment (FDI) n the host country, the hgher the share of HIIT and VIIT. Multnatonal comanes have crucal nfluence on IIT through ther FDI actvtes. Investng n roducton facltes abroad creates the ossblty to exchange roducts at dfferent levels n the roducton stage, thereby contrbutng to IIT. The logarthm of the absolute dfference of stocs of FDI (n bllon USD) n the Vsegrad Countres s used to test ths hyothess. FDI s measured n current nternatonal USD and data s comng from the WDI database. A ostve sgn s exected for VIIT as well as HIIT. H4. IIT wll be greater the closer the countres are geograhcally. The dstance between countres well reflects transort costs. It s evdent that the closer the countres are, the cheaer trade s. Varable lndist ndcates the geograhc dstance between the reortng country and each of ts tradng artners by calculatng the logarthm of the dstance between the catal ctes of tradng artners n lometres. The source of data s the CEPII database. LnDIST s exected to be negatvely related to HIIT and VIIT. In order to test hyotheses above, the followng standard anel regresson model s emloyed: lniit jt = α 0 + α 1 lndgdpc jt + α 2 lnavgdp jt + α 3 lndfdi jt + α 4 lndist jt + v j + j where lniit jt s log of measure of total, vertcal, and horzontal IIT, = Vsegrad Countres and j = EU27 artner country, t = tme; lndgdpc jt s the log of absolute dfference n er cata GDP between and j. LnAVGDP s the log of average value of GDP between and whle lnfdi s the log of absolute dfference of FDI between and j; lndist s log of dstance between the catal ctes of and j. The exected sgns for HIIT are α 1 and α 4 <0, α 2 and α 3 >0, whle for vertcal IIT are α 1,α 2,α 3 >0 and α 4 <0. Table 2 rovdes an overvew of the detals assocated wth varables. 11

14 Table 2: Descrton of ndeendent varables Varable Varable descrton Data source Exected sgn HIIT VIIT The logarthm of er cata lndgdpc GDP absolute dfference World Ban between tradng artners WDI database measured n PPP n current - + nternatonal USD lnavgdp The logarthm of average GDP absolute dfference between World Ban tradng artners measured n WDI database PPP n current nternatonal + + USD lnfdi The logarthm of FDI net nflows absolute dfference World Ban between tradng artners WDI database measured n current + + nternatonal USD lndist The logarthm of absolute dfference between tradng CEPII artners catal cty measured n database - - lometres Source: Own comoston 4. Estmaton results The use of a fxed effects model to cature country dfferences was rejected as a tme nvarant regressor (lndist) s ncororated n the model. Random effects models have been estmated emloyng generalsed least squares and maxmum-lelhood aroaches. The most robust results n terms of statstcal sgnfcance were found wth the former method, therefore only ths secfcaton s reorted. 12

15 Three equatons were estmated n lne wth the three methods of measurng ntra-ndustry trade gven n the lterature revew. Regardng the determnants of horzontal IIT of the VC, t s observable that all the three methods rovde smlar results (Table 3). LnDGDPC and lndist are negatve for all estmatons, whle lnavgdp and lnfdi show ostve sgns. It can also be seen that lnavgdp and lndist are hghly sgnfcant n all cases, whle lndgdpc and lnfdi are less sgnfcant (or nsgnfcant n the case of the Nlsson-ndex). These results are n lne wth revous exectatons on the sgns of the relatonsh. Table 3: Determnants of VC horzontal IIT Deendent varable Indeendent varable GHM H FF H N H ** ** lndgdpc (-2.44) (-2.67) (-0.41) *** *** ** lnavgdp (3.36) (3.90) (2.47) ** ** lnfdi (2.54) (2.16) (0.32) *** *** *** lndist (-5.53) (-5.83) (-3.20) Constant (-0.12) (-0.05) (-0.35) Note: Numbers n arentheses are z statstcs; sgnfcance levels are *** = 1%, ** = 5%, * = 10%. Source: Own calculatons based on Eurostat (2012) As to the determnants of vertcal ntra-ndustry trade, results by method (see Table 4) show smlar sgns n all but one case (lndgdpc s negatve for the FF method but ostve for the other two). All varables excet lnfdi meet revous exectatons on sgns lnfdi turns out to be negatve, though of lttle sgnfcance. Another dfference comared to horzontal estmatons s that lndgdpc s nsgnfcant n all relatons analysed. However, lnavgdp and lndist remaned strongly sgnfcant. 13

16 Table 4: Determnants of VC vertcal IIT Deendent varable Indeendent varable GHMH FFH NH lndgdpc (0.53) (-0.27) (0.98) *** *** *** lnavgdp (7.01) (7.56) (4.54) ** * lnfdi (-2.18) (-1.79) (-1.06) *** *** *** lndist (-6.64) (-7.13) (-4.66) Constant (-0.58) (-0.56) (-0.96) Note: Numbers n arentheses are z statstcs; sgnfcance levels are *** = 1%, ** = 5%, * = 10%. Source: Own calculatons based on Eurostat (2012) Conclusons The artcle analysed atterns and country-secfc determnants of Vsegrad Countres agrfood trade wth the Euroean Unon. Three dfferent aroaches were used to calculate ntrandustry trade ndces (GHM, FF and the Nlsson-method), rovdng the bass for regressons run on the determnants of horzontal and vertcal IIT. In general, the share of VIIT s sgnfcantly hgher than the share of HIIT and agr-food trade of the Vsegrad Countres s domnated by nter-ndustry trade atterns, whch s consstent wth the fndngs of revous research. Tang nto account the geograhcal atterns of IIT n the Vsegrad Countres, t becomes evdent that low vertcal IIT domnates agr-food trade. As to emrcal results, t s verfed that determnants of horzontal and vertcal IIT dffer and suggested that economc sze s ostvely, whle dstance s negatvely related to both sdes of IIT. However, the relatonsh between vertcal IIT and dfferences n factor endowments as well as FDI s ambguous. In general, the results are manly n lne wth ntal exectatons. 14

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