Nonlinear Relationship between Types of Intra Industry Trade and Inflation Rate in Selected Developing Countries

The main purpose of this paper is to investigate the nonlinear relationship betweentypes of intra-industry trade and inflation rate using the panel smooth transition regression model for selected developing countries during the period 2001-2016. In the framework of new trade theories, the relationship between intra-industry trade and inflation rate is not definite and clear, and the relationship depends on market structure, product differentiation and economies of scale and other factors such as tradeliberalization, exchange rate pass through, government size and human capital. For examining the relationship between types of intra-industry trade and inflation rate, two empirical models each in four cases have been used. In general, the results show that increases in vertical and horizontal intra industry trades reduce inflation rate which confirms the results of Krugman studies (1981, 1979). An increase in inflation also reduces vertical and horizontal intra-industry trades. According to the obtained results, it seems that enhancing intra-industry trade, especially horizontal one could improve foreign trade as well as control inflation.