Intra-industry trade

From Wikipedia, the free encyclopedia

Intra-industry trade refers to the exchange of products belonging to the same industry. The term is usually applied to international trade, where the same kinds of goods and services are both imported and exported.

1 Examples
2 Explanation
3 Measurement
4 Reference

[edit] Examples

Examples of this kind of trade include cars, foodstuffs and beverages, computers and minerals.

Europe exported 2.6 million motor vehicles in 2002, and imported 2.2 million of them. Japan exported 4.7 million vehicles in 2002 (1 million of which went to Europe, and 2 million to North America), and imported 0.3 million.

[edit] Explanation

Why do countries at the same time import and export the products of the same industry, or import and export the same kinds of goods?

According to Nigel Grimwade, "An explanation cannot be found within the framework of classical or neo-classical trade theory. The latter predicts only inter-industry specialisation and trade" (Grimwade, International Trade: New Patterns of Trade, Production & Investment, second edition 2000, p. 71).

In Marxian economics, it is argued that international trade cannot be explained by comparative advantage but must be explained in terms of relative profitability. Thus, if it is profitable both to import and export the same kinds of goods, it will occur, regardless of whether that makes economic (or ecological) sense.

Furthermore, Intra Industry trade may occur due to the owing:

Entrepôt trade:

Whereby large ports such as Rotterdam can act as holding places for goods which are then sold on.

Seasonality:

For example in agricultural products, such as English apples, which may be exported all around the world during a particularly good apple growing season, but imported during a poor one.

Transport costs:

Firms in two adjoining countries with a long border may find it more cost effective to trade with a neighbouring country, goods which it already produces domestically. E.g. in country A, firm Fa can trade with firm Ca, however firm Cb (although it is located in another country) is closer. Transport costs for goods between the two firms are therefore less, and Intra Industry Trade occurs.

[edit] 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, it could be argued that although a BMW and a Ford are both motor cars, and although a Budweiser and a Heineken are both beers, they are really all different products.

Various indexes of IIT have been created, including the Grubel-Lloyd index, the Balassa index, the Aquino index, the Bergstrand index and the Glesjer index. Research suggests that

IIT is not simply a fiction or artifact 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 4-5% a year. Thus, more and more, countries are importing the same kinds of products they are also exporting.

"Intra-industry trade has been considered in international trade literature as the explanation of the unexpectedly large expansion of industrial trade among OECD countries, for which it represented more than two-thirds of their total international trade by the beginning of the seventies." Bela Kadar, Review of Herbert Giersch, On the economics of intra-industry trade, in Journal of economic Literature, Vol. 19 No. 3, September 1981, p. 1109