Intra industry trade formula
Massive growth in Industrialization and Gross Domestic Product GDP and a stronger relation between India and China ha ve led to an increase in bilateral trade between the two countries. Further, the study examines trade patterns of commodities traded between the countries and how have they changed over the years. The study used data of 99 commodities and conducts a decade wise comparison. Recent developments and policy changes on the bilateral trade front between India and China have also been discussed. The research has important implications for policymakers, economists and business involved internal trade.
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- An Intra-Industry Analysis Of Nebraska’s Trade With Japan, India, And China, 2002-2017
- 33.3 Intra-industry Trade between Similar Economies
- Regional Trading Arrangements and Intra-industry Trade: The Case of ANZCERTA
- Terms of trade and the gains from trade
- The determinants of intra-industry trade in insurance services
- GL Index Calculation and Application in Intra-industry Trade
- Inter-industry and intra-industry trade. Heckscher-Ohlin Model
- Article Info.
- EuroEconomica, Vol 33, No 2 (2014)
- Intra-Industry Trade: The Theory and Measurement of International Trade in Differentiated Products.
An Intra-Industry Analysis Of Nebraska’s Trade With Japan, India, And China, 2002-2017
Massive growth in Industrialization and Gross Domestic Product GDP and a stronger relation between India and China ha ve led to an increase in bilateral trade between the two countries. Further, the study examines trade patterns of commodities traded between the countries and how have they changed over the years.
The study used data of 99 commodities and conducts a decade wise comparison. Recent developments and policy changes on the bilateral trade front between India and China have also been discussed. The research has important implications for policymakers, economists and business involved internal trade. On the other hand, India liberalized its economy in the early s and has witnessed an average growth rate of over 6 percent since then .
The Asia-Pacific region has also seen tremendous growth from the late s as the economies within the heterogeneous region have flourished. This can be attributed to the increased regional capital flow, trade, and other forms of economic and political interactions. The scale of trade has increased after such bilateral trade agreements and has also influenced the volume of production, export, and import in various sectors of the economy. This has also lead to some changes in the nature of international trade and its structure .
India and China, in particular, have drawn key attention, as not only they have witnessed high GDP growth rate, but also have a huge economy base, land, and population and play an import role in the regional trade.
Although India and China have been trade partners since centuries, the border dispute among them has influenced the geopolitical relation and the flow of goods. However, there is a growing concern for India because the balance of trade is sporadically increasing in favor of China. Over the last two decades to and to , the imports from India to China have increased around 6.
Moreover, there are growing concerns about China dumping products in India, which has lead to the closure of businesses and hampering many industries . It is believed that many imports from China to India are under invoiced, i.
Thus, the growing trade imbalance between India and China is a concern for the country, and India is cautious to join any more regional trade agreements like RCEP. This is because, such trade agreements may further reduce custom duty and import tariffs on the majority of items, further distorting the trade balance .
Through this paper, we examine the commodities in which the counties trade, the changes in the pattern of the trade and share of Intra-Industry Trade between the countries. We do this analysis for two decades i. The findings of this study would help policymakers to understand nature and volume to the trade between the two countries and understand its impact on the industries and consumers across both the countries.
The paper also contributes to academia by examining the extent to which the trade between the counties is of intra-industry type and how both the counties are placed when it comes to trade of specific commodities. Traditionally economists found that countries ventured in international trade primary to export goods which were most suited to its own factor endowments and technology while importing the goods which have high factor endowment cost and were least suited to the natural characteristics of the country.
As this type of trade involves exports and imports of different type of commodities it is called Inter-Industry Trade . However, lately, it has been established that with increased industrialization, industrial economies increasingly involve in within industry trade, i. The primary reason for this is: reducing sunk costs, enhancing industry specialization, and gets economies of scale . Standard trade theory assumes trade involving homogeneous products; hence with perfect competition, there is only Inter-Industry Trade .
Ricardo showed that goods are more mobile across international boundaries than other resources land, labor, and capital and thus countries would reap more gains from producing whatever best in can and trading that with other nations. Ricardian model of trade showed that countries can take advantage of each other due to differences in the factor of endowments between them, i.
Thus, according to these theories, countries should export products which are most suited to its factor endowment like natural resources, labor, technology, etc. Thus, countries primarily trade between goods belonging to different industries. This type of trade is known as Inter-Industry Trade. However, during the s many international trade researchers found that in many developed industrial nations, a large volume of simultaneous exports and imports was being done between similar kinds of commodities.
It was Verdoorn  who first observed the formation of custom union among the Benelux Countries which were formed to enhance two-way cross country trade involving similar kind of products. The significance of IIT is not only because of the comparative advantage that lies within a particular country or region, but it also arises as products are differentiated and enormous fixed costs are involved in manufacturing such products.
Illustratively, there would be more economic advantage for the industry to produce only cars and minimize the overall cost of production, rather than to produce all types of vehicles motorcycles, vans, trucks, etc. This illustration can be extended to geographical boundaries also. It other words, it may be of more economic sense to produce one type of product in one country, and second in other, although both belonging to the same industry.
For example, Japan may have a competitive edge in producing electronic items and Germany for high-quality cars. Thus, IIT increases the benefits of trade by better-exploiting economies of scale and bring industry specialization. It focuses on producing a particular type of products or focusing on particular industries.
This results in the expansion of world output and reduction or savings of fixed costs. The nature of trade Intra or Inter-Industry depends on the degree of similarities the countries are having between the factors of endowment.
As countries become similar, the trade between them will increasingly become intra-industry in character . The GL-Index is used widely till date to measure the intensity of IIT for at a specific point of time a particular year. However, as. Figure 1. Difference between inter and intra-industry trade. Hamilton and Kniest and Brulhart, showed GL-Index is a static measure and can determine IIT only at a specific point in time, but cannot be used to compare values taken from different time periods   .
Hamilton and Kniest and Greenaway, Milner et al. Bruilhart and Elliott  suggested A-Index which is defined in all cases and also takes into consideration the yearly change while calculating the Marginal Intra-Industry Trade.
Further, A-Index can be aggregated across industries to reach at an overall level for a particular set of years, which can then be used to compare the trend the over years. The index calculation has been discussed in the methodology section. Intra-Industry Trade has been widely researched in the past three decades. Several contributions were made to the theory of IIT and empirical studies were done to find the intensity and determinants of IIT and industry specialization.
It was Verdoorn  who first observed that the formation of custom union among the Benelux countries enhanced two-way cross country trade involving similar products.
Recent studies on IIT have focused on the role of free trade agreements in promoting IIT  , pattern and growth of IIT across countries and regions  , the relationship between IIT and demand for child labor  , determinants of IIT in automotive and electrical appliances sector .
Studies have also examined the role of domestic innovation and firm heterogeneity on IIT  , and the effect of IIT on environment among others . India specific studies on IIT have focused on country-specific factors which influence IIT  , how trade barriers and multinational involvement leads to change in IIT, and the vertical and horizontal nature of IIT .
The geographic proximity and vast shared national boundaries make India and China much suited for cross-country trade. The countries also have similar resource pool to some extent, with resources like huge labor pool, iron reserves, etc. Both the countries have seen tremendous economic development in recent years.
The India-China trade ties have increased the bilateral trade between them to a significant level. Over the years India and China have broadened bilateral ties in various areas, putting aside the border disputes. Bilateral agreements have been initiated in the form of science and technology cooperation, civil aviation by establishing direct air links, and through cultural exchange programs. The Chinese economy was decentralized in the s and major economic reforms and structural changes have already taken place in China.
India was a latecomer to economic reforms, embarking on the process only in , in the wake of an exceptionally severe balance of payments crisis. The country opted for a systemic shift to a more open economy with greater reliance upon international trade, a larger role for the private sector including foreign investment, and restructuring of the role of government.
India has a significant and growing trade deficit with China, as with other major economies in the world. With an increase in bilateral trade with China, the trade deficit has also increased significantly. Moreover, India is always drawn by a fear of being swamped by Chinese imports, especially in cheap electronic goods and appliances category. Majority of industry players in India are repulsive to this and are of opinion that there is no need to give the Chinese a free ride into the domestic markets, as this is creating an adverse situation for Indian exports to China and other courtiers.
This is particularly when India and China have been directly competing across several product categories like clothing, leather and textile products . Moreover, businesses and policymakers are concerned with the increased imports of manufactured goods from China. Cheap exports from China have specifically impacted the products manufactured by medium and small scale Indian Industries, which are expensive but of better quality.
Influenced from the above characteristics and an enormous increase in trade over the last two decades, though this paper we analyze the degree to which India and China involve in IIT. Moreover, we examine the trend and volume of major commodities traded between the countries over the past two decades.
In the later section of this paper, we discuss the trade pattern of various commodities being actively traded between the two countries in recent years, and find the reason of some of the changes in trade pattern and share. The paper provides implications for policymakers, export-import consultants and public at large. This HS system is an internationally standardized system of names and numbers to classify traded commodities and came into effect in The system was developed and maintained by the World Customs Organization WCO and is followed by more than member countries .
Export and Import data for India and China for all the 99 commodities based on HS was downloaded from the website of Indian Department of Commerce and aggregated in a spreadsheet for a period of 20 years to The value of A-Index varies between 0 and 1, where, values close to unity indicate trade is of Intra Industry type and values close to 0 indicate trade is of Inter-Industry type.
A-Index can be aggregated across commodities to arrive at Weighted A-Index, by obtaining weighted average across commodities. The weights correspond to the proportion change in the trade of a particular commodity to the proportion of change in the total trade for a given set of years. Values for trade volume and MIIT were calculated and analyzed for the two-decade period.
The first decade comprised trade between the countries from to , and the second decade from to The decade wise comparison provided a realistic way to analyze and compare structural trade changes.
Also, the year was chosen to divide the two decades, as the year witnessed the global recession which impacted the export-imports between the counties . As it was not cognizant to analyze all the 99 commodities, top 20 export-import commodities between India and China were identified and used for analysis. This resulted in a total of 30 commodities, which represented at least 85 percent of the total trade between the two countries for a particular year.
Decade wise comparison was done to examine the changes in trade patterns over a long period of time. The weighted A-Index between Indian and China from to ranged from 0.
This is not alarming, as previous studies have found that IIT in developing and newly-industrialized countries NICs is generally less than 10 percent of their total trade . Refer to Figure 2 and Figure 3.
To understand the factors which affected the level of IIT, commodity-specific changes in the trade volume weights and A-Index ratio was analyzed. Similarly, Ores HS 26 represented 3. While the top three commodities which were imported were Electrical Machinery and. Figure 2.
33.3 Intra-industry Trade between Similar Economies
Using the formula for the intra-industry trade index, explain why the index can take on a value of 0 for industries with no intra-industry trade and a value of 1 for industries with all of their trade being intra-industry trade. Jan 10 PM Solution. Questions Courses. Using the formula for the intra-industry trade index, explain why the index can take on a value of 0. Jan 10 PM.
Regional Trading Arrangements and Intra-industry Trade: The Case of ANZCERTA
Explore more content. Cite Download 1. Empirical work on intra-industry trade IIT is almost 30 years old. An important motivation for this research is associated with the issue of adjustment costs; if most of the growth in trade resulting from the RTA is attributable to IIT, then the resource re-allocation costs in the short to medium term are likely to be lower. This is because IIT does not require inter-industry factor movements. To answer the first question, researchers have used movements in the value of the Grubel and Lloyd , GL index over time, while the second has been dealt with by comparing the value of the GL index for intra versus extra RTA trade. Employing the GL index in these ways to answer these questions can lead to error.
Terms of trade and the gains from trade
The determinants of intra-industry trade in insurance services
Grade Booster student workshops are back in cinemas for A measure of the intra-industry trade that takes place between countries is the Grubel-Lloyd GL index. If a country only exports or imports good X e. On the other hand, if a country imports exactly as much of good X as it exports, then its GL score for sector would be 1. Developed economies and rapidly industrialising developing economies e. Resource-rich developing economies and Less Developed Countries tend to have relatively little intra-industry trade.
GL Index Calculation and Application in Intra-industry Trade
In light of the growing significance of trade in financial services, and the emphasis placed on trade in financial services during the Uruguay round of trade negotiations, this article is the first study of the determinants of intra-industry trade IIT in insurance services. The empirical results of the determinants of IIT indicate that foreign direct investment in insurance services FDI is a significant contributor to the volume of trade in insurance services. These empirical findings confirm the new theoretical trade models that, unlike the traditional trade theory that considered trade and foreign direct investment in insurance services as substitutes, trade and FDI complement each other and hence multinational insurance companies are contributing to an increase in the volume of trade in insurance services. Furthermore, this study shows that trade intensity between the United States and its trading partne rs leads to product differentiation in insurance services and hence an increase in consumer welfare. Due to the importance of the financial services sector and the emphasis placed on trade in financial services during the Uruguay round of trade negotiations, trade in insurance services has grown rapidly in the last 20 years, and a number of researchers have analyzed and examined various issues related to international insurance services. The study by Sapir and Lutz investigates the sources of comparative advantage in insurance services for developed and developing countries, primarily using the Heckscher-Ohlin-Samuelson H-O-S model. A number of studies by Outreville , , , have shed light on the significance and implications of growth in international insurance services. The comprehensive study by Skipper analyzes many facets of protectionism in the provision of international trade in insurance services and paves the way for further study in this important area.
Inter-industry and intra-industry trade. Heckscher-Ohlin Model
Camarilla pronunciation. Instead of using three levels, the Camarilla pivot points are based on a system of four support levels and four resistance levels. In practice, there are many ways to calculate pivot points.
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EuroEconomica, Vol 33, No 2 (2014)
Absolute and comparative advantages explain a great deal about global trading patterns. For example, they help to explain the patterns that we noted at the start of this chapter, like why you may be eating fresh fruit from Chile or Mexico, or why lower productivity regions like Africa and Latin America are able to sell a substantial proportion of their exports to higher productivity regions like the European Union and North America. Comparative advantage, however, at least at first glance, does not seem especially well-suited to explain other common patterns of international trade. The theory of comparative advantage suggests that trade should happen between economies with large differences in opportunity costs of production. Roughly half of all world trade involves shipping goods between the fairly similar high-income economies of the United States, Canada, the European Union, Japan, Mexico, and China see Figure. Moreover, the theory of comparative advantage suggests that each economy should specialize to a degree in certain products, and then exchange those products. A high proportion of trade, however, is intra-industry trade —that is, trade of goods within the same industry from one country to another.
Intra-Industry Trade: The Theory and Measurement of International Trade in Differentiated Products.
Res J Econ Thus, this study is essentially exploratory and requires a deeper analysis with more extended data. The paper includes four sections. Section 1 consists of brief demographic profiles of Japan, India, China, and Nebraska.