Determinants of India’s Bilateral Intra-industry Trade over 2001–2015

Abstract

Over the last decade India’s integration in international production networks (IPNs) has deepened, with growing simultaneous export and import within product categories. This has been facilitated by India’s entry into several regional trade agreements (RTAs) and multilateral tariff and non-tariff barriers reforms. The present paper examines the patterns and determinants of aggregate bilateral intra-industry trade (IIT) between India and 25 major trading partners during 2001–2015 in a panel data framework. India’s bilateral IIT indices with select countries generally display an upward trend over the sample period. The empirical results indicate that vertical intra-industry trade (VIIT) significantly explains India’s IIT pattern with the selected countries. The analysis further concludes that trade facilitation among the trading partners may significantly enhance bilateral IIT level with respect to India’s high-income partners, while the same effect is non-significant for low-income countries. Interestingly, the preferential trade dummy is found to be non-significant, implying limited influence of the RTA partnerships on India’s aggregate bilateral IIT. The empirical results underline the need for fast-tracking the trade facilitation-related reforms.