Abstract
Problem statement: The main objective of this study was to establish the determinants of intra industry trade between Zimbabwe and its trading partners in the Southern African Development Community (SADC) region. The study was mainly motivated by the need to establish the type of goods that Zimbabwe trades with its trading partners. Approach: The study also wanted to prove the hypothesis that similarity in per capita income is not the main determinant of intra-industry trade between Zimbabwe its SADC trading partners; and also that intra industry trade does not necessarily take place among countries with similar economic structures and level of development. The study used the Modified Standard Gravity Equation which has Intra-Industry Trade Index as its dependant variable. The model was regressed using Ordinary Least Squares in excel. Results: The results of the study show that per capita income, trade intensity, distance, exchange rate and gross domestic product explain Intra-Industry Trade (IIT) between Zimbabwe and its SADC trading partners. The study also established that most countries in SADC trade in more or less the same goods and this can be explained by the type of development that these countries were subjected to during the colonial era which resulted in the establishment of similar economic structures and per capita incomes that were more or less the same. As result, these countries produce and trade similar products. Both hypotheses above were proved wrong. Conclusion: We therefore concluded that Zimbabwe needs to get into more bilateral trade agreements with its trading partners in order to enhance trade between itself and its trading partners. We also concluded that Zimbabwe has to give incentives to its producers and also mend its relationship with the Breton Woods Institutions (International Monetary Fund and the World Bank) if it wants to reach its full trade potential.
Highlights
According to[1,5] intra-industry trade involves trade in differentiated products, that is, trade in goods that belong to different industries, such as textiles and motor industries
We used a time series data set on the Modified Standard Gravity Model which included the per capita income, dissimilarity in per capita income, trade intensity, distance between capitals, exchange rate, gross domestic product and dummy for common borders as its explanatory variables
LogIIT is the logarithm of intra-industry trade, logPCI is the logarithm of per capita income, logDPCI is the logarithm of dissimilarity in per capita income, logTI is the logarithm of trade intensity, logDIS is the logarithm of distance, logER is the logarithm of exchange rate, logGDP is the logarithm for gross domestic product and D1 is the dummy for adjacency
Summary
According to[1,5] intra-industry trade involves trade in differentiated products, that is, trade in goods that belong to different industries, such as textiles and motor industries. A great deal integration between two products involves ranking of international trade is Intra-Industry Trade (IIT) as products according to levels of characteristics being opposed to inter-industry trade. Intra-industry trade augmented while it is lowered for others, for example different versions of a car. Inter-industry trade involves trade in commodities that are completely different; and arises in order to take advantage of important economies of scale in production. It benefits consumers because of the wider range of choices, that is, the Corresponding Author: Tafirenyika Sunde, Polytechnic of Namibia, School of Business and Management, Department of Economics, Private Bag 26925, Windhoek, Namibia Tel: 00264612072406 Mobile: 00264813711879
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