Economic Integration, Inter– and Intra–Industry Trade: The Case of Sweden and the EC

When trade is heavily restricted, a small country may show a "false" comparative disadvantage in differentiated products at an early stage in the life cycle, because firms are confined to a small domestic markel. An analysis of changes in the pattern of trade between Sweden and the EC after the establishment of free trade in manufactures shows that the Swedish net export position improved in industries with high rates of growth in demand and turnover of technology. The results provide some support for the hypothesis that an initial Swedish disadvantage in product cycle goods, caused by the limitations of the domestic market, was reduced by the free trade agreement.