India's Marginal Intra-industry Trade in Selected Agricultural and Processed Food Products: The Likely Implications on Adjustment Costs and Food Security

Abstract

The present study makes an attempt to analyse the structure of India's trade in agricultural products and its possible implications on resource adjustments and food security. As per the ‘Smooth Adjustment Hypothesis’ (SAH), trade integration as a consequence of Intra Industry Trade (the simultaneous export and import of goods from the same industry) would not lead to significant adjustment costs that take place with the displacement of resources from comparatively disadvantaged industries to export oriented industries, as in the case with inter industry trade patterns. If a country is experiencing an increase in inter-industry trade, the changes in exports and imports would be unmatched and as a result the resources will be reallocated from the contracting sectors to the expanding ones. The analysis of marginal intra-industry trade (MIIT) - a dynamic measure of intra industry trade - for selected agricultural and processed food products showed that the products mainly exhibits inter industry trade structure. The study also noted an emergence of new pattern of demand on tropical agricultural products in developed countries. The shift in cropping pattern from traditional to high valued crops that we see in this paper might be due to this shift in global demand. This shift in global demand was also reflected in the expansion of the exports of non-food crops from India to world market. The trade pattern in the form of inter-industry trade in general and the expansion of the exports of high valued crops and processed food products in particular might pose serious implications on the resource adjustments as well as food security.