Transcript
Intra Industrial Trade
Introduction
• Intra-industry trade occurs when a country exports and imports goods within the same industry or product group such as exporting autos and importing autos • In this type of trade the goods exchanged are not perfect substitutes, but are similar types of goods with different levels of quality i.e. Differentiated products
Intra-Industry Trade Index
X- M Intraindustry Trade Index=1X+M
Where X = value of exports M = value of imports
IIT Index
• IIT ranges from 0 (no Intra-industry trade) to 1 (100 percent Intra-industry trade). • The closer to 0, the less Intra-industry trade relative to Inter-industry trade. • The closer to 1, the more Intra-industry trade relative to Inter-industry trade.
Product Exports category
Food , Beverages, and tobacco $ 70
Imports
Intra industry Trade
0.93
Net trade
$80
$-10
Petroleum and 30 other fuels Chemicals 121
226
0.234
$-196
40 412
0.496 0.902
$81 $89
Machinery 501 and transport equipment Clothing 45
140
0.486
$-95
Problem in IIT Index
– Values of intra-industry trade depend on how narrowly a particular industry or product group is defined. – More broadly defined groups will show more Intra-industry trade, e.g., Motor vehicles – More narrowly defined groups will show less Intra-industry trade, e.g., pickup trucks
Types of Intra-Industry Trade
Intra-Industry Trade
Homogeneous Products Horizontally Differentiated Products Vertically Differentiated Products Varying Prices Widely Different Product Characteristics (Automobiles, Watches)
Same Price Similar Prices Identical Products Slightly Different Product Characteristics Wheat, Concrete, Petroleum) Associated Processes
(Gasoline, Chocolate, Perfume)
Reduction of Transportation Costs
Associated Processes Overlapping Demands
rovision of Homogeneous Services Economies nsurance, Shipping, Financing Associated of ith International Trade) Scale Provision of Uninterrupted Flow of Seasonal Products (Tomatoes)
Product Cycle
Economies of Scale
• Economies of scale occur when average costs fall as a firm’s plant size (its scale) increases. • Also sometimes referred to as decreasing costs or increasing returns to scale • Example
– – – – – Currently, a domestic firm is producing at a level below its minimum cost (point A) Domestic demand for the product increases Its production increases thereby decreasing costs (it moves from point A to B or C) Making it cheaper than other countries And allowing it to export
Economies of Scale as a Basis for Trade
Economies of Scale as a Basis for IIT B/W US & Germany
Product Cycle
• • There often is a cycle in product development and production Goods are first introduced in a developed country requiring heavy R&D expenses and refinement in production Then this process is followed by product stabilization in design and production, and finally complete standardization and production in a developing country
•
The Product Cycle
Overlapping Demands
• Consumer demand is likely to be similar across countries with similar income levels.
– Domestic producers target at tastes and income levels of the domestic market. – And their products are exported to other countries with similar tastes and income levels. – Products produced in other countries with similar tastes become imports.
•
Automobile trade is a likely example
– U.S. car manufacturers make cars that satisfy tastes and income levels of US market – Some US consumers may prefer cars produced abroad that target foreign tastes/income levels – Some foreign consumers may prefer US cars – This exchange leads to intra-industry trade
Thanks