IEB Final Project

on
Intra Industry Trade

Group 2G
Ansul Mishra 2016PGP069
Bhavya Rastogi 2016PGP076
Nathaniel K 2016PGP091
Parth Dadhania 2016PGP097
Sunil Kumar 2016PGP115
Umesh Chander 2016PGP118
Zakir Zafar M 2016PGP124
Intra industry trade index
Intra-industry trade refers to the exchange of similar products belonging to the same industry
The traditional model of trade were set out by the model of David Ricardo and
the HeckscherOhlin model, which tried to explain the occurrence of international trade.
Types
There are three types of intra-industry trade
Trade in Homogeneous Goods

Trade in Horizontally Differentiated Goods

Trade in Vertically Differentiated Goods

Intra vs inter industry trade

Inter-industry trade is a trade of products that belong to different industries.

For instance, the trade of agricultural products produced in one country with technological equipment
produced in another country can be classified to be an inter-industry trade. Countries usually engage
in inter-industry trade according to their competitive advantages.

Intra-industry trade, on the other hand, is a trade of products that belong to the same industry. As it
has been noted, intra-industry trade (IIT), that is trade of similar products, has been a key factor in
trade growth in recent decades. These trends have mostly been attributed to the fragmentation of
production (outsourcing and offshoring) as a result of globalisation and new technologies
Measurement
Intra-industry trade is difficult to measure statistically because regarding products or industries
as "the same" is partly a matter of definition and classification.

For a very simple example, although a BMW and a Ford are both motor cars, they are really
all different products.

IT is not simply a fiction or artefact produced by statistical classifications and definitions, but
very much a reality.
the share of IIT in total international trade is growing all the time, at about 45% a year.
Thus, more and more, countries are importing the same kinds of products they are also
exporting
Country wise data

Arab Saudi Arabia USA Hong Kong China

 Countries Average S.No.
Italy 86.85 1
Singapore 85.77 2
United Kingdom 85.26 3
France 85.03 4
Thailand 80.27 5
UAE 79.40 6
Germany 78.29 7
Belgium 75.96 8
Japan 74.95 9
USA 71.03 10
Hong Kong 69.39 11
South Africa 66.08 12
Ranking of the countries with whom Russia 63.84 13
Indias Intra Industry Trade index is Malaysia
China
63.79
56.60
14
15
highest Saudi Arabia 54.98 16
Korea 54.77 17
Iran 50.27 18
Indonesia 41.59 19
Vietnam 40.71 20
Australia 36.39 21
Qatar 35.54 22
Nigeria 31.32 23
Switzerland 14.40 24
Iraq 12.97 25
 Entry strategies
France Pharmaceuticals and other
chemical products imports
UK Import of live animals, meat North- North- Not possible as India is a developing
country
and other diary products
Australia Import of various cereals South North
& other edible products

Malaysia exports of food products Australia Import of fish products

And processed edibles
Nigeria Exports of edible fruits and
South- South- Italy Import of fish and crustaceans
Japan Import of clothing and apparel
vegetables
Iraq Import of edible citrus fruits South North knitted or non-knitted
and nuts
Reasons
Reasons for trade - homogeneous goods
lower transportation costs near borders
seasonal variations may impact both supply and demand. (Brocoli imported to US from Mexico in the
Winter and exported from the US to Mexico in the summer.)
Reasons for trade - differentiated goods
demand of the minority consumers not met by domestic producers overlapping demand segments
economies of scale associated with greater output of a specific type of good
Intra industry trade and stages of development
Developed economies and rapidly industrialising developing economies (e.g. Hong Kong, China; Singapore; Malaysia
and Thailand) tend to engage in more intra-industry trade
Resource-rich developing economies and Less Developed Countries tend to have relatively little intra-industry
trade
Economies such as Malaysia and Thailand have more intra-industry trade with other developing countries in the
same region
Japan has more intra-industry trade with developing economies it is net importer of commodities and it is
also geographically close to several emerging "industrialized" countries such as South Korea.
Gains from intra-industry trade can reflect economies of scale (lower costs) and wider consumer choices
The relative importance of intra-industry trade depend on how similar countries are.
Countries with similar relative amounts of factors of production are predicted to have intra-
industry trade.
Countries with different relative amounts of factors of production are predicted to have inter-
industry trade.
How to improve
Countries where overall labour and capital productivity is low have lower wages and produce less differentiated
goods and services; heavily reliant on a small number of products: build a deeper level of complexity into the
economy

Policy level:
implement technology hubs: cities like Silicon Valley CA
Trade barriers
External economies of scale:
Specialized equipment or services
Labor pooling
Knowledge spillovers
Thank You!