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Program & Batch:

PDGM 2015-17


Third Term

Course Name:


Name of the faculty:

Ratna Vadra

Intra Industry

Topic/ Title :


Original or Revised Write-up:


Group Number:

Group 4

Contact No. and email of Group


Group Members:



Roll No.



Anurag Singh


Karthik Kumar P


Khushboo Somani


Siddharth Burman


Mridul Kalra


Tanmay Swarup


Akash Gupta


Krittika Mehrotra

Intra Industry Trade

Intra-industry trade means the exchange of similar products which belong to the same industry.
The term is applied to international trade, where in the same types of goods or services are
both either mported or exported.

Examples of this kind of trade can include automobiles, food stuffs and beverages, computers,
minerals etc.
Countries like Europe have exported 2.6 million motor vehicles in 2002, and imported 2.2 million
motor vehicles. Another example could be when Japan exported 4.7 million vehicles in 2002 (of
which 1 million went to Europe, and about 2 million went to North America), and then Japan
imported 0.3 million.

Types of Intra-Industry Trade

There are three types of intra-industry trade

1. Trade in Homogeneous Goods.

2. Trade in Horizontally Differentiated Goods: this means to the simultaneous

exports and imports of goods classified in the same sector and at the
same stage of processing. This is likely based on product differentiation,
for example South Koreas simultaneous import and export of mobile
telephones in the final processing stage. As these mobile phones is
produced using similar technology and provide similar functions they are
classified in the same sector. Nonetheless, the exported Samsung
telephones differ in appearance and product characteristics slightly from
the imported Nokia telephones, catering to the desires of different types
of consumers
3. Trade in Vertically Differentiated Goods: vertical intra-industry trade; this refers

to the simultaneous exports and imports of goods classified in the same

sector but at different stages of processing. This is likely based on the
increasing ability to organize fragmentation of the production process
into different stages, each performed at different locations by taking
advantage of the local conditions. China, for example, imports technologyintensive computer components and uses its abundantly available labor
force to assemble these components in the laborintensive final production
stage, before the components (as part of a finished computer) are
exported again to Europe or the USA.

Although the theory and measurement of intra-industry trade initially focused on trade in goods,
especially industrial products, it has also been observed that there is substantial intra-industry
trade in the international trade of services.

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?
a) Countries of identical factor endowments would trade due to differences in technology, as
this would encourage specialisation.
b) Such trade is more beneficial than inter-industry trade because it stimulates innovation
and exploits economies of scale.
c) Productive factors do not switch from one industry to another, but only within industries,
intra-industry trade is less disruptive than inter-industry trade.

Indexes of Intra Industry Trade

Indexes of Intra Industry Trade have been created,


GrubelLloyd index,
Balassa index
Aquino index,
Bergstrand index
Glesjer index.

If GLi = 1, there is only intra-industry trade, no inter-industry trade. This

means for example the Country in consideration Exports the same
quantity of good i as much at it Imports. Conversely, if GLi = 0, there is no
intra-industry trade, only inter-industry trade. This would mean that the
Country in consideration only either Exports or only Imports good i.

Empirical Characteristics of Intra-Industry Trade

There are structural differences across sectors regarding the extent of intraindustry trade. To demonstrate this, we use the factor intensity classification of
the International Trade Center, the joint UNCTAD/WTO organization, which
distinguishes between five broad factor intensity categories at the 3-digit level,
namely (within brackets the number of sector belonging to the particular
A. Primary products (83); e.g. meat, dairy, cereals, fruit, coffee, minerals, and oil.
B. Natural-resource intensive products (21); e.g. leather, wood, pig iron, and
C. Unskilled-labor intensive products (26); e.g. textiles, clothing, ships, and

D. Human-capital intensive products (43); e.g. perfumes, cosmetics, cars, and

E. Technology intensive products (62); e.g. chemicals, electronics, tools, and

India's IIT with Europe

India's intra-industry trade with Europe has seen the least growth, at a measly
2.01 per cent, compared to that with the other regions. In fact, the index of the
IIT with Europe was higher compared to that with the other Group.

India's IIT with Asia

s, the -growth in the IIT with the region managed to display an average growth of
4.17 per cent, which is higher than India's IIT at the multilateral level and also
with Europe.

1 lndia's IIT with Americas

In comparison to the other significant markets, like Asia and Europe, India's IIT
with the America was much lower.

India's IIT with Middle East

Interestingly, the indices of India's IIT with the Americas and the Middle East
were almost at the same level in 1987-88. While India's intra-industry trade with
the Americas has undoubtedly augmented, that with the Middle East has not only

seen almost twice the growth, but the index has also surpassed that of the

India's IIT with Africa

Although India's intra-industry trade with Alrica, at 13.59 per cent, has posted
the highest growth when compared to the other regions, the component of the
intra-industry in the total trade with the region is quite small, on the average.

India's IIT with Australia and Oceania

The intra-industry trade with the region of Australia and Oceania (A&O) shows an
extremely peculiar trend. From 2.17 in 1987-88, it exhibited a rrsing trend and
peaked at 8.88

In conclusion, we note that intra-industry trade, the simultaneous import and
export of similar types of goods or services, is measured using the Grubel-Lloyd
index, is to some World Economy Intra-industry trade Princeton University Press
8 extent based on lumping together different types of goods in one sector
(aggregation problem), can be based on (horizontal) product differentiation or
(vertical) fragmentation, is associated in particular with the production of
sophisticated manufactured goods, and is an increasingly important part of
(intra-firm) total trade flows in todays globalizing world, particularly for
developed countries