An Analysis of the Structure and the Determinants of Intra-industry Trade in Agri-food Products: Case of India and Selected FTAs

Abstract

The growing evidence of intra-industry trade (IIT) in integrated markets has provided sufficient justification for trade in countries with similar endowments. While several studies have been undertaken looking at manufacturing and industrial goods, this article analyzes the structure and determinants of trade in agri-food products between India and members from its selected Free Trade Agreements (FTAs)—the South Asian Preferential Trade Agreement (SAFTA) and Association of Southeast Asian Nations (ASEAN). It is focused on agri-food products as the IIT literature in general is more focused on manufacturing products. The analysis found that India’s trade with partner countries is predominantly in the form of IIT. Nonetheless the relative IIT was found higher for countries such as Bhutan, Bangladesh and Nepal among SAFTA members and for Singapore among selected ASEAN members. The econometric analysis using to bit model showed that the free trade agreement had a positive impact on IIT. The empirical analysis further revealed that similarities in demand and agricultural-related factor endowments have a positive impact on IIT. Nonetheless macro variables from the supply side—GDP and per capita GDP—showed that the higher the dissimilarities the higher the IIT. The negative impact of increased average size on IIT is justifiable on account of the fact that the exploitation of scale advantages is lower for agri-food products as compared to other manufacturing products.