International Trade
Intra-Industry Trade
Definition
Intra-Industry Trade (IIT) refers to simultaneous
exports and imports of commodities in the same industry or
production group in a given time.
In studying some economies, three contradictions were found:
Much of the trade was found between countries with similar factor endowments.
A large part of the trade is IIT.
Trade expansion not with sizeable reallocation of resources or income distribution effect
Theories based on differences cannot explain these contradictions.
Therefore, IIT emerged.
Here are some reasons for IIT:
Differentiation of consumption and production: Economies of scale at the firm level and industry level
lead to country-specific goods.
Categorisation
Geographical and seasonal problems
Degree of processing in terms of value added
Measurement of IIT
For a good j with exports Xj and imports
Mj, the level of IIT, Bj is:
Bj is a percentage from 0 to 100:
When Bj = 0, all inter-industry trade
When Bj = 100, all intra-industry trade
Categorisation Problem: Opposition Effect
When we consider the IIT with more than one good, there
is a problem where the two goods can cancel each other out.
For example, with two goods, the combined IIT is:
Suppose M1=0 and X2=0. Now, even if
(X1 - M1) and (X2 - M2)
are non-zero, their sum can still be zero.
To address this problem:
Check B for each disaggregate level (But how much is substantial?)
Regroup industries with the same characteristics (But how can we justify that the re-grouped data are better?)
Compute an adjusted index of IIT
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