Bilateral Intra-industry Trade Research Articles

Immigration - Trade Relationship in ASEAN: What Does the Evidence Show?

The Association of Southeast Asian Nations (ASEAN) region has become more integrated through trade and migration. Yet, public policies in ASEAN do not consider the interrelations between trade and immigration policies. Therefore, the paper employs a static panel gravity model for the 10 ASEAN countries over five-year intervals between 1990 and 2020 to identify the direct connections between migration and trade (exports, imports and intra-industry trade). The empirical results support a pro-import immigrant effect but not a pro-export immigrant effect. The negative effect of the stock of immigrants on the share of bilateral intra-industry trade implies that immigration better explains one-way trade or inter-industry trade. The limited presence of the immigrant-link effects reflects the large stock of unskilled ASEAN immigrants that reduces the possibilities of creating networks between the home and host countries. The significant immigration-import links, however, is sufficient to justify the importance for ASEAN to work towards connecting migration and trade policies.

Does Difference in Environmental Standard Influence India’s Bilateral IIT Flows? Evidence from GMM Results

In the recent past, India has entered into several regional trading agreements (RTAs) with the objective of export promotion, on the one hand, and deepening participation in the global value chains, on the other. The consequent rise in Indian exports had been accompanied by a simultaneous import growth, given the trade preferences for partners through RTAs as well as ongoing unilateral tariff reforms. The rise in simultaneous exports and imports has enhanced the country’s intra-industry trade (IIT) level. Recently, India has engaged in RTA negotiations with several developed countries, which are characterized by more stringent environmental standards. The current analysis attempts to identify factors that influence India’s bilateral aggregate IIT index in a dynamic panel framework. In particular, it attempts to assess whether greater divergence in environmental standards adversely influence India’s IIT patterns. The empirical estimates reveal that India’s IIT is found to be relatively higher with countries that are technologically more advanced and have relatively stringent environmental standards. The observation indicates that India is possibly specializing in relatively low technology-intensive products vis-à-vis its developed trade partners. The analysis concludes that India would be better off by facilitating innovation and adhering to a higher level of environmental standard. JEL Codes: F13, F14, F15, F18

Are export earnings from India’s bilateral intra-industry trade with the US and China robust enough?

PurposeThis paper aims to explore whether India’s export basket in the bilateral intra-industry trade (IIT) with two of its top trading partners characterize robust export earnings or not. This is pertinent for two reasons. First, India has a persistent problem of current account deficit for over decades now. Second, whether India’s export diversification strategy by participating in global value chains to improve export share in the world market led to the problem of the fallacy of composition.Design/methodology/approachThis study considers bilateral trade data between India-USA and India-China at the HS-6 digit level over the period 1990–2018. The magnitude of total IIT is computed using the Grubel and Lloyd (1971) index. This paper then uses the unit value dispersion criterion to disentangle the magnitude of total IIT into horizontal and vertical IIT. Through a stepwise econometric exercise, this paper explores the attributes of exported goods in the IIT basket in terms of the directions of ToT, export share and export-price elasticity.FindingsAcross the two country pairs, the major contributors to the upsurge in IIT are five manufacturing industry groups of chemical, plastics and rubber, textiles, base metals and machinery and mechanical appliances. Across the industry groups, the dominant form of IIT has been low vertical IIT. Most of the industry groups do not characterize robust export earnings as the commodity groups have an elastic demand and an increasing trend of Terms of Trade (ToT). The exceptions are the industry groups of chemicals and textiles in India-China and India-USA, respectively.Research limitations/implicationsThe concern of slim export earnings in most industry groups offers scepticism in maintaining the sustainability of the current account. The problem of the fallacy of composition also cannot be ruled out given the dominance of low vertical IIT. This study argues that these industry groups need to engage in labour market reforms and require access to easy credit to achieve competitiveness in the world market.Originality/valueThe analysis performed in this paper attempts to integrate the Prebisch-Singer hypothesis in the context of IIT. Empirical evidence to such an issue is not profound.

The Relationship Between Indonesia’s Foreign Direct Investment and Bilateral Intra-Industry Trade with Japan, China, and ASEAN-9

Many countries try to engage more in international trade to be part of global networks. Foreign investment is one of the ways to improve a country’s economies of scale. Thus, developing countries, such as Indonesia, try to attract more FDI. FDI is mainly export oriented and wants to compete globally. Intra-industry trade measures export and import in the same industry. A high degree of intra-industry trade means a country has strong integration with a partner’s country. This study examines the relationship between FDI in Indonesia’s manufacturing sector and bilateral intra-industry trade between Indonesia and Japan, China, and ASEAN-9, especially at the industry level. The method of this study is the Fixed Effect Model. The result shows that the linkage between FDI and intra-industry trade is only significant in specific industries. In the case of Indonesia and Japan, FDI in the vehicle and other transportation industry has the highest correlation with intra-industry trade. Meanwhile, in the case of Indonesia and China, FDI in the metal, except machinery, and equipment industry shows the highest association with intra-industry trade. In the case of Indonesia and ASEAN-9, the highest linkage between FDI and intra-industry trade is in the textile industry. The relationship between FDI and intra-industry trade differs across locations and industries.Keywords: foreign direct investment, manufacture, intra-industry tradeAbstrakBeberapa negara mencoba untuk lebih terlibat dalam perdagangan internasional untuk menjadi bagian dari jaringan global. Investasi asing dipercaya merupakan salah satu cara untuk meningkatkan skala ekonomi dari suatu negara. Oleh karena itu, negara berkembang seperti Indonesia mencoba untuk menarik lebih banyak penanaman modal asing (PMA). Tujuan utama PMA biasanya adalah berorientasi ekspor dan ingin bersaing di pasar global. Perdagangan intraindustri mengukur ekspor dan impor dalam satu kategori industri. Indeks perdagangan intraindustri yang mempunyai nilai tinggi berarti suatu negara memiliki integrasi yang kuat dengan negara mitra. Kajian ini mencoba menganalisis hubungan antara PMA sektor manufaktur di Indonesia dan bilateral perdagangan intraindustri antara Indonesia dengan masing-masing Jepang, China, dan ASEAN-9, khususnya pada level industri. Metode dari penelitian ini menggunakan Fixed Effect Model. Hasil penelitian menunjukkan bahwa keterkaitan antara PMA dan perdagangan intraindustri hanya signifikan pada industri tertentu. Dalam kasus Indonesia dan Jepang, PMA pada industri kendaraan bermotor dan alat transportasi lain memiliki korelasi tertinggi dengan perdagangan intraindustri. Sedangkan untuk kasus Indonesia dan China, PMA pada industri logam dasar, barang logam, bukan mesin dan peralatannya menunjukkan hubungan yang paling tinggi dengan perdagangan intraindustri. Dalam kasus Indonesia dan ASEAN-9, hubungan tertinggi antara PMA dan perdagangan intraindustri adalah pada industri tekstil. Hubungan PMA dan perdagangan intraindustri berbeda antarlokasi dan industri.Kata kunci: penanaman modal asing, manufaktur, perdagangan intraindustri

Avoiding and escaping the 'commodity trap' in development

Based on the 'Prebisch-Singer' hypothesis, a strand of literature has emerged that focuses on the phenomenon of commoditisation and 'commodity trap' in development. Following Kaplinsky (2006), we revisit the hypothesis on a country's terms of trade in manufacturing trade. Offering high quality products and targeting 'niche' markets in high-income countries are beneficial strategies for developing countries to improve their terms of trade and escaping a potential 'commodity trap'. Barriers to entry via standards in the importing countries might even support such strategies. In this study, we firstly propose a proxy to capture commoditisation. Then, applying a gravity model on global bilateral intra-industry trade flows controlling for multilateral resistances over the period 1998-2014, it is shown that compliance with quality non-tariff measures (NTMs) reduces the negative impact of commoditisation on industry-level terms of trade.

Determinants of Intra-Industry Trade: An Investigation with Bma for the European Union

The empirical literature on determinants of intra-industry trade (IIT) is vast and comprehensive, yet as the authors failed to properly account for model uncertainty it has brought inconsistent and conflicting results. To resolve this issue, Bayesian model averaging was applied to investigate the robustness of 48 potential determinants of bilateral IIT for the panel of 26 European Union countries over the 1999-2011 period. Application of BMA demonstrated that 11 of them are robust determinants of IIT, namely real GDP product, trade openness, membership in the European Union and the Euro area, corruption, and differences in factor abundance. Among the factors of production, the key role in the determination of IIT patterns can be assigned to the differences in human capital. Yet, transportation cost and cultural similarity have no impact on the IIT patterns.

Country-Specific Determinants of Intra-Industry Trade in Clothing and Footwear between Poland and European Union Countries

The present study investigated the country-specific determinants of intra-industry trade between Poland and its European Union trading partners in clothing and footwear during the time period 2004–2017. The econometric model for panel data was used to identify the factors determining bilateral intra-industry trade with EU countries. The research findings show that the size of the trading partners' economies has a positive impact on the development of intra-industry trade in clothing and footwear. The size of the country, measured by the size of its GDP, is equated with the size of the market and the possibilities of selling differentiated products in it. The geographical distance separating the trading countries turned out to be a factor limiting the development of intra-industry trade. An unfavourable effect on the intensity of intra-industry trade is also the degree of imbalance in trade between trade partners. The study confirmed that the direction of the impact of all determinants of intra-industry trade identified is consistent with the predictions of the theory.

Trade Composition and Acquiescence to Sanction Threats

In this article, we argue that the composition of trade is an important determinant of vulnerability to sanctions. Trade composition has changed considerably over the years since World War II, with growth in intra-industry trade: the exchange of similar, often branded, commodities that follows from varied consumer preferences and economies of scale. Conversely, we see relatively less of the traditional inter-industry trade: exchange of distinct and often homogeneous commodities that follows from comparative advantage. We demonstrate that targets maintaining higher proportions of intra-industry trade with senders benefit from greater resilience against economic coercion and thus are less likely to acquiesce to sanction threats. Importantly, however, we contend that bilateral intra-industry trade does not necessarily prevent the onset of sanction threats. Statistical tests of sanction threat cases and directed dyad-years spanning 1962–2005 support our expectations.

DETERMINANTS OF INTRA-INDUSTRY TRADE: AN INVESTIGATION WITH BMA FOR THE EUROPEAN UNION

The empirical literature on the determinants of intra-industry trade (IIT) is vast and comprehensive, yet as authors failed to properly account for model uncertainty it has brought inconsistent and conflicting results. To resolve this issue, Bayesian model averaging was applied to investigate the robustness of 48 potential determinants of bilateral IIT for the panel of 26 European Union countries over the 1999-2011 period. Application of BMA demonstrated that 11 of them are robust determinants of IIT, namely real GDP products, trade openness, membership in the European Union and the Euro area, corruption, and differences in factor abundance. Among the factors of production, the key role in the determination of IIT patterns can be assigned to the differences in human capital. Yet, transportation cost and cultural similarity have no impact on the IIT patterns.

Analysis of Horizontal and Vertical Intra-Industry Trade: The Case of Mexico and China

The purpose of this study is to measure and analyze the extent of vertical and horizontal intra-industry trade between Mexico and China in seven sectors over a five-year period, from 2012 to 2016, using disaggregated trade data at the SITC three digit level; and to identify in what sectors IIT is mainly concentrated. Lastly, this paper aims to disentangle trade into: inter-industry trade, horizontal intra-industry trade, low quality vertical ITT (low ITTV) and high quality vertical ITT (high-ITTV). One of the main findings is that there is relatively low bilateral intra-industry trade between Mexico and China. Furthermore, the results showed that it was high-ITTV that prevailed over low-ITTV. In this type of trade, China is mainly exporting low quality goods to Mexico.

Determinants of Iran's BilateralIntra-industry Trade in Pharmaceutical Industry.

Among non-oil and in trade arena, drug has always been strategic importance and most government especially industrialized countries pay special attention to its production and trade issues. Thus, having a comprehensive view from economic perspective to this section is essential for suggesting intervention. This was a descriptive-analytical and panel study. In this study, gravity model is used to estimate Iran's bilateral intra-industry trade in pharmaceutical products in the 2001-2012 periods. To illustrate the extent of pharmaceutical's intra-industry trade between Iran and its major trading partners, the explanatory variables of market size, income, factor endowments, distance, cultural contributions, and similarities and also special trade arrangements have been applied. Analysis of factors affecting Iran's bilateral intra-industry trade in pharmaceutical industry showed that the average GDP and cultural similarities had a significant positive impact on Iran's bilateral IIT, while the difference in GDP has a negative and significant effect. Coefficients obtained for the geographical distance and the average ratio of total capital to the labor force is not consistent with theoretical expectations. Special trade arrangements did not have significant impact on the extent of bilateral intra-industry trade between Iran and its trading partners. The knowledge of the intra-industry trade between Iran and its trade partners make integration between the countries. Factors affecting this type of trade pattern underlie its development in trade relationship. Therefore, the findings of this study would be useful in helping to develop and implement policies for the expansion of the pharmaceutical trade.

"Bilateral Intra-Industry Trade in Country Characteristics Context: The Case Study of Trade of Bosnia and Herzegovina with Croatia"

Abstract: The paper focuses primarily on intra-industry trade (IIT) which is researched in the context of country-specific characteristics. A three-decade-long academic research of IIT phenomena suggests that IIT is likely to be more intensive and mostly of horizontal type between countries that are at a similar stage of economic development, with the same level of trade openness and with intensive and significantly liberalized mutual trade. Geographical proximity of countries, especially their common border, as well as their similarities in some non-economic characteristics such as history, culture, language, also contribute to IIT intensity. Bosnia and Herzegovina (BH) and Croatia match most of these criteria for intensive and increasing IIT. The aim of the research is to check aforementioned thesis on IIT on a case study of BH in its trade with Croatia over the period from 2003 till 2016. Research is focused on IIT characteristics – intensity, trend and structure, both at aggregate level (based on calculating corrected and uncorrected Grubel-Lloyd indices) and at division level of Standard International Trade Classification – SITC (based on calculating standard Grubel-Lloyd index and relative unit values of export and import). The research findings indicate a continuously rising, although lower than expected, intensity of IIT, taking into account similarities between given countries in comparison with other important trading partners of BH and taking into account a high level of data aggregation. In BH trade with Croatia inter-industry trade still prevails while high intensive IIT appears in a very low number of product groups, coupled with the dominance of vertical IIT. However,at the same time a growing trend and a significant increase of IIT intensity in trade with Croatia have been identified.

Bilateral intra-industry trade flows and intellectual property rights protections: further evidence from the United Kingdom

ABSTRACTThis paper investigates the relationship between the United Kingdom's (hereafter referred as UK) bilateral intra-industry trade (IIT) and foreign intellectual property rights (IPRs) protections. The empirical investigation is based on pooled UK data and benefits from the theoretical distinction between horizontal and vertical IIT. It also estimates a gravity equation for international trade using both fixed and random effects models. We then extend the analysis by employing the GMM system for dynamic panel models. The principal findings suggest that the UK's IIT is stimulated when the level of a trading partner's IPRs and its imitative ability are considered jointly. However, when IPRs and imitation abilities are considered separately, their disparate effects are not an important factor in determining UK IIT flows.

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

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.

Production fragmentation and factor price convergence

In this analysis, we empirically analyze if the nature of trade matters for international factor price convergence. In particular, we examine whether factor prices converge when country pairs involve with more bilateral production fragmentation arrangements. We apply panel fixed effect techniques using data for five EU countries. The analyses are controlled for alternative trade related indicators such as bilateral trade intensity and bilateral intra-industry trade as well as for industrial similarity variables. We find that bilateral production fragmentation plays a key role in labor cost converging effects of trade.

Competitiveness, Trade with the EU and Labour Markets: Challenges for the Western Balkans

AbstractThis paper focuses on the relationship between exporting and the labour markets of the Western Balkan economies within a macroeconomic and microeconomic framework. Within the macroeconomic framework we investigate the Western Balkan countries’ evolution of the bilateral intra-industry trade share with European Monetary Union members and compare this with the differences in bilateral unit labour cost dynamics. The microeconomic analysis rests on enterprise-level cross section data collected during the crisis period and investigates whether exporters help to create additional jobs in the region in comparison to entrepreneurs oriented towards national market. The results show that trade patterns between Western Balkan economies and EMU trading partners did not exhibit any significant changes in trend. On the other hand, it seems that during the recession period most Western Balkan economies adjusted their unit labour costs, probably in order to boost competitiveness. Microeconomic analysis revealed that, although there are some positive differences between exporters and non-exporters, exporters do not create additional employment.

Determinant factors of intra-industry trade: the case of Poland and its European Union trading partners

This study has investigated the country-specific determinants of intra-industry exchange between Poland and its European Union trading partners during the time period 2002–2011. The analysis of the factors determining the Polish bilateral intra-industry trade with European Union countries applied an econometric model for panel data. As follows from the research, the intensity of intra-industry trade is dependent on numerous factors. The factors that exert a positive impact on the development of intra-trade exchange include the participation of processed products in bilateral trade between Poland and UE states, the intensity of trade with specific countries as well as the size of a partner country measured by its GDP per capita. Increases in the intra-trade turnover are also facilitated by EU membership and by the fact that Poland’s trade partners use a similar language, belonging to the group of the Slavic languages. The intensity of intra-trade exchange is weakened by the degree of the imbalance of trade turnover between trading partners, geographical distance that separates trading partners and significant differences in the size of trading partners’ GDPs.

A Study of Comparative Advantage and Intra-Industry Trade in the Pharmaceutical Industry of Iran.

Background:Drug costs in Iran accounts for about 30% of the total health care expenditure. Moreover, pharmaceutical business lies among the world’s greatest businesses. The aim of this study was to analyze Iran’s comparative advantage and intra-industry trade in pharmaceuticals so that suitable policies can be developed and implemented in order to boost Iran’s trade in this field.Methods:To identify Iran’s comparative advantage in pharmaceuticals, trade specialization, export propensity, import penetration and Balassa and Vollrath indexes were calculated and the results were compared with other pharmaceutical exporting countries. The extent and growth of Iran’s intra-industry trade in pharmaceuticals were measured and evaluated using the Grubel-Lloyd and Menon-Dixon indexes. The required data was obtained from Iran’s Customs Administration, Iran’s pharmaceutical Statistics, World Bank and International Trade Center.Results:The results showed that among pharmaceutical exporting countries, Iran has a high level of comparative disadvantage in pharmaceutical products because it holds a small share in world’s total pharmaceutical exports. Also, the low extent of bilateral intra-industry trade between Iran and its trading partners in pharmaceuticals shows the trading model of Iran’s pharmaceutical industry is mostly inter-industry trade rather than intra-industry trade. In addition, the growth of Iran’s intra-industry trade in pharmaceuticals is due to its shares of imports from pharmaceutical exporting countries to Iran and exports from Iran to its neighboring countries.Conclusions:The results of the analysis can play a valuable role in helping pharmaceutical companies and policy makers to boost pharmaceutical trade.

Modelling bilateral intra-industry trade indexes with panel data: a semiparametric approach

This paper focuses on the modelling of bilateral intra-industry trade indexes with panel data, applying a semiparametric approach. This extends the work of Papke and Wooldridge (J Econom 145:121---133, 2008) for fractional responses, by introducing a nonparametric component to control for unobserved heterogeneity associated with the regressors. The proposed approach is based on the semi-mixed effects generalised linear model of Lombardia and Sperlich (Comput Stat Data Anal 56:2903---2917, 2012), introduced in the context of small area statistics, and the semiparametric gravity model of Proenca et al. (Empir Econ doi:10.1007/s00181-014-0891-x, 2014). The resulting nonlinear semiparametric model serves to explain the bilateral intra-industry trade indexes between Portugal and the European Union, the BRIC emerging economies, and the five Portuguese-speaking African countries.

Foreign direct investment and Iran's bilateral intra-industry trade with China and the Russia

This paper analyzes the dynamic changes of Iran's intra-industry trade with its major trading partners, China and the Russia, from 2001 to 2013. The estimated intra-industry indexes demonstrate that, while shares of Iran's intra-industry trade with both China and Russia rose substantially, its intra-industry trade with China increased of the overall trade in 2013, considerably larger than 15% with the Russia. The Iran-China intra-industry trade concentrated in electrical and machinery sectors and accounted for 52 and 55% of the total trade in those sectors, respectively.. In addition, the paper investigates to what extent that foreign direct investment from those two countries promoted their bilateral intra-industry trade with Iran. The empirical results show that, China direct investment performed a significant role in enhancing the bilateral intra-industry trade. However, it finds evidence that the Russia direct investment contributed to the growth of the Iran-Russia intra-industry trade.