International Trade Databases and

Trade Indicators for International

Business
Lecture 2
 What is the use of Trade Analytics?
Firm’s Perspective
Let PI and PUS be the price of a product in
India and US respectively.
Is the product competitive? How to
measure competitiveness?
Is PI + T + NTB + t < PUS?
Where, T and NTB are Tariff and Non-
Tariff Barriers on the product
respectively. t represents transport and
other transaction costs.
How to interpret estimated trade cost
between two countries?
How to make best economic sense of the
government / multilateral body reports,
using indices, projections etc.?
How to create your own predictions based
on standard indices?
How to conduct simulation-based exercises
for estimating effect of policy change?
Bottom-line: Will the gains from trade exceed the costs of trade?
Policymaker’s Perspective
Understanding the movement in a
particular indicator / certain indicators at
country level / across the globe
Analyzing the degree of export / import
basket diversification
Comparing the performance of a certain
country and judging its suitability for
trade and investment with India and vice
versa
Analyzing competitiveness of a particular
product / sector’s exports
Understanding whether India’s trade
pattern is becoming more integrated with
another country – suitability for RTA
Measuring impact of RTAs on trade and
welfare
Potential for trade in intermediate
products and participation in value chains
 Data Analysis: Approaches and Questions
Analytical Tools Analytical Tools

Ex ante simulation: projecting the Ex post approach: using historical

effects of a policy change onto a data to conduct an analysis of the
set of economic variables of effects of past trade policies.
interest.

Partial equilibrium: Focuses on General equilibrium: explicitly

one or multiple specific markets accounts for all the links between
or products, ignoring the link sectors of an economy –
between factor incomes and households, firms, governments
expenditures. and the rest of the world.

Objective: Adoption of appropriate policies for correcting certain

apprehensions / expectations on the basis of data analytics.
 International Business: The Analytical Steps

No. Step Method Source

1 Identification of Dynamic and Table and Bubble Graphs Trade Map

Declining Markets

2 Identifying Product Mix Table and Bubble Graphs Trade Map

3 Comparing Trade Potential Trade Potential Index Trade Map

4 Absolute Competitiveness in Revealed Comparative Computed from

the World Advantage Index Trade Map
data

5 Bilateral Competitiveness with Export Specialization Computed from

the Target Partner Index Trade Map
data

6 Production integration Intra-Industry Trade Computed from

(Overall / Sectoral) with Index Trade Map
ROW / bilateral trade data
partners
 International Business: The Analytical Steps ..

No. Step Method Source

7 Type of Trade – Horizontal / Comparison of Unit Price Computed from
Vertical Trade Map
data
8 Competitiveness against the Unit Price Method Computed from
Competitors in the Target Trade Map
Partner data
9 Product Competitiveness across Extensive and Intensive Computed from
all Global markets Margin Trade Map
data
10 Competitiveness in a Group of Constant Market Share Computed from
markets Analysis Trade Map
data
11 Identification of Tariff Comparison of Tariff Market Access
Barriers across Target Markets Barriers across the Map
Globe
12 Understanding the degree of Comparison of Tariff Market Access
Tariff Preference in the Target Barriers imposed by the Map
Markets individual countries
 International Business: The Analytical Steps ..

No. Step Method Source

13 Understanding the Rules of Comparison of Trade India Trade
Origin provisions across Trade Agreements with Portal
Blocs and Partners bilateral partner
countries
14 Understanding the Potential Glance through the Market Access
Government Non-Tariff product standard Map; India
Barriers in the Target Markets requirements Trade Portal
15 Understanding Government Glance through India Trade
Support for Exports Government Schemes Portal
16 Understanding the Potential Glance through the Standards Map
Private Sector Non-Tariff product standard
Barriers in the Target Markets requirements
17 Estimating the effects of Comparing domestic and Computed from
Government and Private Non- world unit price for the Trade Map,
Tariff Barriers in a target select commodity WITS data
market
18 Competitiveness and Potential Partial Equilibrium Simulation with
Market Gains in case of Tariff Simulation Analysis WITS data
Reform
 Some Important Trade Databases and their Uses
Database Purpose Link
Export Import India’s export and import data http://commerce.nic.in/eidb/default.asp
Database
Details of RTAs, FTAs, Comparison between select http://aric.adb.org/
ADB ARIC FTA provisions through a menu-driven toolkit,
Integration indicators
Trade indices, Trade Costs http://www.unescap.org/tid/artnet/artnet_app/i
UNESCAP
ti_aptiad.aspx
Market Identification, Trade Pattern, Short Time http://www.trademap.org
Trade Map Series Data Analysis, Trade Indices, Generation of
Graphs

Market Access Map Trade barrier - Tariff, Non-Tariff, Rules of Origin http://www.macmap.org/

Market Identification, Structure of Trade, Trade http://wits.worldbank.org/wits/

Pattern, Long Time Series Data Analysis, Trade
WITS
indices, Tariff and Non-Tariff Barriers, Unit Price
Comparison
World Trade Atlas Monthly, Quarterly data for countries but paid http://www.gtis.com/english/GTIS_WTA.html

OECD TIVA Trade in Value Added http://stats.oecd.org/index.aspx?queryid=47807

SPS-TBT, Anti-Dumping etc. http://www.wto.org/english/res_e/statis_e/itip

WTO ITIP
_e.htm
Bound and Applied Tariff and Import Value http://tariffdata.wto.org/ReportersAndProducts
WTO Tariff
.aspx
Commodity and Market-wise maximum residue http://www.mrldatabase.com/
MRL Database
limits
Understanding the restrictiveness of service trade http://www.oecd.org/tad/services-
STRI
trade/services-trade-restrictiveness-index.htm

STRI Understanding the restrictiveness of service trade http://iresearch.worldbank.org/servicetrade/

Important Trade Databases
1. Export Import Data Bank – Ministry of Commerce

http://commerce.nic.in/eidb/default.asp
EIDB (Region-wise all Imports)
 2. Trade Map
Measures Importance

Select the commodity of your interest at HS 6-digit level. Obtain data

on major importers, i.e., main market e.g. 720310 (Ferrous products).

Click on 6-digit code of the leading market to obtain further sub-

Yearly Time classification (e.g. US)
series
Chick on 8-digit code to obtain details of markets supplying to US

Click on the particular country to obtain details of its export direction

(e.g. Brazil)

Select the commodity of your interest at HS 6-digit level. Obtain data

on major importers, i.e., main market, growth trends, concentration of
supplier countries and tariff details. e.g. RCA for 271019 for India
Select a country of your interest (e.g. US), which shows the
Trade characteristics with respect to the importer countries
Indicators Select on the tariff, and that will take you to Market Access Map,
describing the tariff level in partner countries in the same product.
Generate a map for graphical representation.
Click on the ‘+’ sign to get the details of the import in a country (e.g.
Turkey) – it then functions like the Yearly Time Series
The same procedure can be conducted for trade in services as well
http://www.trademap.org/SelectionMenu.aspx
 2A. Trade Map: Obtaining Data on
Export Direction

• Suppose, we want to know about the major markets of India

for a particular product in a select year

Product Mens / Boys shirts of man-made fibre,

knitted (HS 610520)
Country India
Partner All
Trade Flow Exports
Data Type 1 Trade Indicators
Data Type 2 By Country
Emerging Conclusions?
 2B. Trade Map: Prospect for Market
Diversification - Graphical Representation

• Suppose, we want to know about the major markets of India

for a particular product in a select year

Product Mens / Boys shirts of man-made fibre,

knitted (HS 610520)
Country India
Partner All
Trade Flow Exports
Data Type 1 Trade Indicators
Data Type 2 By Country
Graph Type Bubble Graph for Prospect of Market
Diversification

Let us work this out!!

 2C. Trade Map: Understanding the Type of
Market

• Suppose, we want to know about the major markets of India

for a particular product in a select year

Product Mens / Boys shirts of man-made fibre,

knitted (HS 610520)
Country India
Partner All
Trade Flow Exports
Data Type 1 Trade Indicators
Data Type 2 By Country
Graph Type Bubble Graph on India export growth
versus Partner import growth

Let us work this out!!

2D. Trade Map: Understanding prospect for product
diversification by a sub-category exported by India
• Suppose we want to understand how is the Indian prospect
in partner countries in light of their import growth rate vis-
à-vis other countries in the world?
• Suppose we take sub-categories in Men’s Shirts (HS 6105)
only
• Identification of key markets
Product Men’s Shirts (HS 6105)
Country India
Partner All
Trade Flow Exports
Data Type 1 Trade Indicators
Data Type 2 By product
Level Product cluster at 6-digits
For How many partners 1 - 20
Bubble type Bubble graph on India export growth
vs. partner import growth
2E. Trade Map: Understanding Potential Trade in a
targeted Partner Country
• How can we understand the indicative potential trade of
India with a trade partner?
• Suppose we want to understand the potential trade of India
with respect to USA for all HS-6 digit products for Men’s
shirts, knitted or crotcheted (HS 6105)

Product Men’s shirts (HS 6105)

Country India
Partner USA
Trade Flow Exports
Data Type 1 Yearly Time Series
Data Type 2 By product
Product cluster 6 digits
Time Period (3 per column) 3 per page
 Understanding Potential Trade ..
• Suppose we look at the second product 610520 in 2014.

• Trade Potential

• = Min {Exporter country’s global exports, Partner country’s

global imports} – actual bilateral trade

• = Min(242809, 819000) – 23709

• = 242809 - 23709

• = 219100
 3. Market Access Map
Measures Importance

Tariffs What is the tariff charged by a country on all its trade

partners in your area of interest and how problematic regional
preference can be for your exports? Case: Brazil imports of
871110 from ROW and preference to Asociación
Latinoamericana de Integración (Latin American Integration
Association) partners

Non-Tariff What are the types of NTBs being applied on your area of
Barriers interest both in terms of legislations and applied measures.
Case: EU imports of 871120 from ROW. Select the barrier to
get details and the start date

Trade Remedy Whether there is any trade remedial measures being applied
Measures on your area of interest (anti-dumping, countervailing duty,
safeguards). Case: US imports of 722611 from ROW.
Trade Agreements The ROOs are important in understanding the cumulation
and Rules of Origin provisions and documentation requirements, which enables a
partner to take an informed call on operation and
establishment

Compare Tariffs How a country is going to face tariff problems on its exports.
Case: Bangladesh exports of 611012 to all partners
 3A. MACMAP: Which markets offer
lesser Tariff Barrier for Indian Exports?

Main Menu Quick Search

Drop Down Compare Tariffs
Country India
Trade Flow Exports
Product Mens/boys shirts, of man-made fibres, knitted
(610520)
Output Table / Map
 3B. Macmap: How to understand the Tariff
Preferences granted in Target Markets?

Main Menu Quick Search

Drop Down Find Tariffs
Impoerer Japan
Product Men's or boys' shirts, knitted or crocheted: Of man-
made fibres: Open shirts, polo shirts and similar
shirts: Containing embroidery or lace, or figured: Of
synthetic fibres (610520011)
Exporter All
Output Table
 3C. Macmap: What are the Non-Tariff
Barriers in Target Markets?

Main Menu Quick Search

Drop Down Find Non-Tariff Measures
Country India
Reporter Brazil
(Importer)
Partner India
(Exporter)
Product Camisas de malha de uso masculino: De fibras
sintéticas ou artificiais (61052000)
Output Table / Link
 4. WITS
Measures Importance

Select the commodity of your interest at HS 6-digit level and Data

definition. Obtain data on the product e.g. 720310 (Ferrous products).

Obtain import data for leading markets to understand the major

Yearly Time importers (e.g. US)
series
Check the price competitiveness through unit price comparison at 6-
digit level

Check the level of processing in trade with various countries

Select the commodity of your interest at HS 6-digit level. Obtain RCA

for 271019 for India and competitors

Select the country of your interest. Obtain TCI for Indo-US trade
Trade
Indicators Select the country of your interest. Obtain TII for Indo-US trade.

Obtain the other trade indicators.

http://www.trademap.org/SelectionMenu.aspx
 WITS

http://wits.worldbank.org/wits/
WITS: Advanced Query
WITS: Advanced Query ..
 Application: India’s Export Structure to US and World

Category US WORLD

2000 2005 2010 2010 2000 2010

Exports

Raw materials 7.35 5.49 4.52 9.79 11.37 9.88

Intermediate
goods 41.77 30.79 34.68 43.13 37.33 35.64

Consumer goods 45.96 52.47 47.33 40.65 41.59 42.61

Capital goods 4.92 11.26 13.47 6.43 9.70 11.87

Imports

Raw materials 9.42 10.49 9.24 46.95 37.67 36.25

Intermediate
goods 32.09 32.24 45.47 26.58 31.26 36.60

Consumer goods 17.10 12.40 9.73 10.92 10.76 8.67

Capital goods 41.39 44.86 35.56 15.55 20.31 18.48

Calculation from WITS data

 5: ADB ARIC
Measures Importance
FTA Trends The scenario
FTA by Country / economy How easy / difficult will it be to penetrate a
market characterized by multiple partner
countries? Case: Japan, South Korea, ASEAN-
Australia New Zealand Agreement
FTA by Group How are things moving within a particular group
and what are the potentials? Case: South Asia

Comparative FTA Toolkit How does select provisions in two RTAs differ?
Can you select a business location accordingly?
Case: Dispute Settlement provisions in India-
ASEAN CECA and Japan-ASEAN CEPA

Integration Indicators How is a particular trade indicator performing

over the years? Case: Export Intensity Index
between India and Indonesia in 4 steps (index,
reporter, partner, year)
Tax Policy Measures In which country to invest? Case: Comparing
India, China and Singapore
http://aric.adb.org/
Comparative Toolkit in ARIC
Integration Indicator in ARIC
 6. Trade Indicators from ESCAP
Measures Importance

Export Share e.g. – India’s export share to China

Import Share e.g. – India’s import share from Malaysia

Trade Intensity e.g. – India’s trade intensity with Indonesia

Trade Complementarity e.g. - India’s trade complementarity with Bangladesh

RCA e.g. – comparing RCA of India’s gems and jewellery (HS 71)
exports with Bangladesh
Export Similarity e.g. – How similar is exports from India and Philippines?

Concentration e.g. – how Thailand’s exports are sectorally or regionally

concentrated
IIT e.g. – compare India’s IIT in cereals (HS 10) with the same in
automobile sector (HS 87)
Regional Orientation e.g. – India’s propensity of exporting automobile products (HS
87) to Thailand
Gravity Model Importance of income similarity and distance

Trade Costs • Consider the Technical Note and the Excel file.
• Elasticity of Substitution assumed to be 8.
• e.g. Compare the Trade cost between India and Angola and
India and UAE
http://artnet.unescap.org/APTIAD/iti_home.aspx
Export Share – India-China
Trade Complementarity Index: India-China
Intra-Industry Trade between India-Japan (Overall)
Intra-Industry Trade between India-China (Sectoral)
How ‘Open’ is a Country to welcome
your Exports?
 1. Trade Openness Index
Formula:

• Mathematical Formula: The value of total trade (imports plus exports)

as a percentage of GDP.
• Definition: Trade openness index is a measure of the importance of
international trade in the overall economy. It can give an indication of
the degree to which an economy is open to trade (subject to some
serious limitations).
• Range of values: It can range from 0 to +∞.
• Limitations: Openness of an economy is determined by a large number
of factors, most importantly by trade restrictions like tariffs, non-
tariff barriers, foreign exchange regimes, non-trade policies and the
structure of national economies. The share of trade transactions in a
country’s value added is a result of all these factors. It is quite
possible that an open and liberalized economy has a relatively small
TOI, if a large proportion of its GDP is created by non-traded
activities supported by the domestic market.

• Hands-on: TOI of all countries from WDI data

• How to interpret the result?
 Trade Openness Index: Interpretation
440

390

340

290

240

190

140

90

40

-10
1960

1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
1962

2000
2002
2004
2006
2008
2010
2012
2014
Belgium China India Singapore Swaziland USA Cut-off

Source: Constructed from World Development Indicators Data

 Trade Openness: Central Asia
250
Kazakhstan Uzbekistan Tajikistan Cut-Off

200

150

100

50

0
1988
1989
1990

1992
1993
1994
1995
1996
1997
1998
1999
1991

2000
2001

2005
2002
2003
2004

2006
2007
2008
2009
2010

2012
2013
2014
2011
Source: Constructed from World Development Indicators Data
 2A. Average Tariff
Formula:

• Mathematical Formula: The mean (average) value of tariffs in a country

or region’s full tariff schedule, or a part of the schedule. n is the number
of products in the product set, and p is the number of countries in the
source.
• Definition: The index shows how much protection is applied by an
economy or region, on average. Higher values indicate a more protected
economy, lower values a less protected economy. In general, lower
protection levels indicate a greater degree of integration with the global
economy. Can be calculated for a subset of regions or products.
• Range of values: The tariff is defined as a percentage, so the average
can range from 0 to +∞ (import ban).
• Limitations: The simple average tariff does not adjust for the
significance of different products in the trade profile, so a high tariff
on an insignificant product may overstate the degree of protection. Does
not provide information on tariff peaks.

• Hands-on: TD for India’s Tariff in HS 85

• How to interpret the result?
 2B. Weighted Average Tariff
Formula:

• Mathematical Formula: The sum of the tariffs in a country or region’s

tariff schedule (or part of the schedule) multiplied by a weighting factor
representing the product’s importance in the country or region’s trade.
• Definition: The index shows how much protection is applied by an
economy or region, on average. Higher values indicate a more protected
economy, lower values a less protected economy. The difference is that
the weighted average tariff takes into account the volume of imports in
each product category.
• Range of values: The tariff is defined as a percentage, so the average
can range from 0 to +∞ (import ban).
• Limitations: As with the simple average, this index may mask tariff
peaks. It has a tendency to understate the level of protection because
• very heavily protected products are imported less (because of the high
tariff), and therefore receive a small weight.

• Hands-on: TD for India’s Tariff in HS 85

• How to interpret the result?
 Tariff Barrier on India’s Gems & Jewellery export
(HS 71) in US Market

3.0

Simple Average Weighted Average

2.5

2.0

1.5

1.0

0.5

0.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Constructed from WITS data at 2-digit level

 2C. Tariff Dispersion
Formula:

• Mathematical Formula: The tariff dispersion index is the standard

deviation of the selected tariff line items.
• Definition: The index measures how widely spread out are the tariffs
in a schedule or part thereof. A high tariff dispersion index indicates
that there is a lot of variation in the tariff schedule. It is believed
that a uniform tariff (with low dispersion) is more economically
efficient. An alternative measure is to consider the difference
between the maximum tariff and the minimum tariff.
• Range of values: The tariff is defined as a percentage, so dispersion
index is measured in the same units. It can range from 0 (if there is a
uniform tariff) to +∞.
• Limitations: The measure should be used in conjunction with the
average tariff. It can be distorted by a small number of exception
tariffs.

• Hands-on: TD for India’s Tariff in HS 84

• How to interpret the result?
Tariff Dispersion on India’s Gems & Jewellery
export (HS 71) in US Market
3.48

3.46

3.44

3.42

3.4

3.38

3.36

3.34
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Constructed from WITS data at 2-digit level

How Diversified is your Export Basket
with respect to a Trade Partner?

Opportunities or Challenges?
 3. Concentration (Hirschmann Index)

Formula:

• Mathematical Formula: The regional Hirschmann index is defined

as the square root of the sum across destinations of the squared
export shares for the region under study to all destinations.
• Definition: The Hirschmann index is a measure of the geographical
concentration of exports, revealing the degree to which a region
or country’s exports are dispersed across different destinations.
High concentration levels are sometimes interpreted as an
indication of vulnerability to economic changes in a small number of
export markets.
• Range of values: Takes a value between 0 and 1. Higher values
indicate that exports are concentrated on fewer markets.
• Limitations: The index is subject to an aggregation bias – the more
disaggregated the data from which it is calculated the better.

• Hands-on: India’s Trade Concentration with Indonesia –

Excel File
• How to interpret the result?
3A. India’s Trade Concentration with EU and World
Year Export Import
EU 27 World EU 27 World

Agriculture (HS 1 – 24)

1995 0.14 0.13 0.13 0.29
2000 0.13 0.11 0.27 0.44
2005 0.12 0.10 0.11 0.30
2010 0.11 0.08 0.13 0.32
2012 0.10 0.12 0.14 0.42
Non-Agriculture (HS 25-99)
1995 0.06 0.07 0.12 0.10
2000 0.06 0.08 0.26 0.20
2005 0.05 0.07 0.14 0.17
2010 0.07 0.08 0.10 0.17
2012 0.06 0.09 0.11 0.20
Total (1 -99)
1995 0.05 0.05 0.12 0.09
2000 0.05 0.06 0.26 0.18
2005 0.05 0.06 0.14 0.16
2010 0.06 0.07 0.10 0.16
2012 0.05 0.07 0.11 0.19

Source: Calculated from WITS data at 2-digit level

3B. Concentration of India’s Export Basket to EAC

2000 2005 2010 2013

0.8

0.74
0.7 0.72

0.61
0.58

0.57
0.6

0.51
0.51

0.50
0.5
0.40

0.40
0.35
0.34

0.34
0.4

0.33
0.33

0.33
0.29

0.27
0.26
0.3
0.23

0.2

0.1

0.0
Burundi Kenya Rwanda Tanzania Uganda

Potential for greater EAC-India trade in merchandise?

Source: Constructed from WITS data

3C. Comparing Concentration of Indian exports across markets
Canada US All
0.70

0.61
0.60

0.50

0.34

0.33
0.40

0.29
0.28
0.30
0.21

0.12

0.13
0.11

0.20

0.10

0.00
2011 2012 2013

Source: Constructed from WITS data

• Suppose we want to compare diversification in Indian export basket
of automobile products (HS 87) in US and Canadian markets.
• Concentration can be compared at 6-digit level for the two
countries.
• How to interpret the result?
3D. Comparing Concentration of Indian exports across countries
Leather Gems and Jewelery All

0.27
0.30

0.27
0.27

0.25

0.24
0.25

0.20

0.15
0.09

0.09
0.09

0.09

0.09
0.10

0.05
0.05

0.05

0.05

0.04
0.05

0.00
2009 2010 2011 2012 2013

Source: Constructed from WITS data

• Suppose we want to compare country diversification in Indian export
basket of leather products (HS 42) and gems and jewellery products
(HS 71).
• Concentration can be compared at 6-digit level for the two countries.
• How to interpret the result?
 3E. Value-Addition Scenario: Comparing Indian export
pattern to World and Tanzania
Raw materials Intermediate goods
50 90 Raw materials Intermediate goods

45 Consumer goods Capital goods 80

Consumer goods Capital goods
40 70

35 60

30 50

25
40
20
30
15
20
10
10
5
0
0 2000 2005 2010 2013
2000 2005 2010 2013

World Tanzania

Understanding sophistication of demand pattern in an economy

Source: Constructed from WITS data
How ‘Preferred’ is a targeted market
for your country?
 4. Trade Complementarity Index
Formula:

• Mathematical Formula: The sum of the absolute value of the difference

between the import category shares and the export shares of the
countries under study, divided by two. The index is converted to
percentage form.
• Definition: TCI measures the degree to which the export pattern of one
country matches the import pattern of another. A high degree of
complementarity is assumed to indicate more favorable prospects for a
successful trade arrangement. Changes over time may tell us whether the
trade profiles are becoming more or less compatible.
• Range of values: Takes a value between 0 and 100, with zero indicating no
overlap and 100 indicating a perfect match in the import/export pattern.
• Limitations: High complementarity indices may be misleading if the
countries are geographically distant, or if the size difference in the
economies is large (i.e., a match in percentage terms does not imply a match
in levels). Aggregation bias.
•
• Hands-on: India’s TCI in exports and imports in Service
Sector vis-à-vis Hong Kong and Taiwan – Excel File
• How to interpret the result?
 Indian Opportunity in Merchandise? Trade Complementarity Indices
Partner Indian Export / Partner Import Partner Export / Indian Import
2008 2012 2008 2012
Australia 59.97 59.14 59.23 54.23
Brunei 50.21 56.43 38.08 41.89
Cambodia 43.81 52.42 5.33 12.07
China 52.42 52.92 40.21 36.74
Hong Kong 41.68 44.16 34.68 39.69
Indonesia 63.43 63.18 57.45 61.45
Japan 61.55 60.86 41.00 39.09
Lao PDR 57.70 53.21 19.36 29.18
Malaysia 51.84 54.86 52.65 54.86
Myanmar - 48.82 - 52.08
New Zealand 59.97 58.92 32.08 28.38
Philippines 54.24 57.50 34.00 35.10
Singapore 49.81 49.39 53.02 51.54
South Korea 58.85 56.17 45.93 45.23
Taiwan 56.63 57.41 43.96 41.42
Thailand 63.28 63.08 44.74 44.72
Vietnam 62.36 52.50 47.45 35.38
62
Source: Constructed from Trade Map Data
Merchandise Trade Complementarity Index between
EAC Import and Indian Export

2000 2005 2010 2013

62.53
70

61.59

60.52
58.71
56.07

54.97
54.04
60

49.58
48.62

48.01

47.45
45.55
44.69

50
40.34

37.79
37.27
36.5
40

30

20

10

0
Burundi Kenya Rwanda Tanzania Uganda

Potential for greater EAC-India trade in merchandise?

Source: Constructed from WITS data

 5. Export Similarity Index
Formula:

• Mathematical Formula: The index is the sum over export categories of

the smaller of the sectoral export shares (as a percentage) of each
country under study.
• Definition: The index is designed to measure the degree of similarity
between the export profiles of two economies. The more similar the
export profiles are, the more likely that economies are competitors in
global markets. High similarity indices may also indicate limited
potential for inter-industry trade with a regional trading arrangement.
• Range of values: Takes a value between 0 and 100 per cent. A value of
zero indicates no overlap in the export profiles (the countries are not
competitors), a value of 100 indicates perfect overlap.
• Limitations: Does not consider the level of exports, only the structure,
so may be misleading when the size of the economies considered is
very different. Subject to aggregation bias.

• Hands-on: France and UK’s ESI in Merchandise Exports – Excel File

• India and Belgium’s ESI in Merchandise Exports – Excel File
• How to interpret the result?
Merchandise Export Similarity Index between EAC and India

43.8
42.91

42.61
45 2000 2005

40.28
40.14
37.56

37.23
40 2010 2013

34.29

33.52
33.03
35
26.29

30
24.45

23.37

22.81
21.96

25

20

14.41
14.6
10.05
15

10

0
Burundi Kenya Rwanda Tanzania Uganda

Potential for greater EAC-India trade in merchandise?

Source: Constructed from Trade Map data

Service Export Similarity Index between EAC and India

71.26
80 2009 2012

70

60.26
60

49.28

40.04
50

38.68
31.19
40

30.71
27.26

30
15.18

20
5.38

10

0
Burundi Kenya Rwanda Tanzania Uganda

Potential for greater EAC-India trade in services?

Source: Constructed from Trade Map data
 Predicting Trade Policy in a Country
ESI Increase ESI Decrease

TCI Increase

TCI Decrease

How are the tariff barriers changing over the period?

 6. Trade Intensity Index
Formula:

• Mathematical Formula: TII is the ratio of two export shares. The

numerator is the share of the destination of interest in the exports of a
region / group of economies under study. The denominator is the share
of the destination of interest in the exports of the world as a whole.
• Definition: TII tells one whether or not a region exports more (as a
percentage) to a given destination than the world does on average. It is
interpreted in much the same way as an export share. It does not suffer
from any ‘size’ bias, so we can compare the statistic across regions, and
over time when exports are growing rapidly.
• Range of values: Takes a value between 0 and +∞. Values greater than 1
indicate an ‘intense’ trade relationship.
• Limitations: As with trade shares, high or low intensity indices and
changes over time may reflect numerous factors other than trade policy.

• Hands-on: TII between Brazil and China in 2012

• How to interpret the result?
 6A. Export Intensity Index

Formula:

• Mathematical Formula:
• xij is the dollar value of exports of country/region i to country/region j,
• Xiw is the dollar value of the exports of country/region i to the world,
• xwj is the dollar value of world exports to country/region j, and
• Xww is the dollar value of world exports.
• Definition: EII tells one whether or not a region exports more (as a
percentage) to a given destination than the world does on average.
• Range of values: Takes a value between 0 and +∞. Values greater than 1
indicate export flow between countries / regions is larger than expected
given their importance in world trade.
• Limitations: As with trade shares, high or low intensity indices and
changes over time may reflect numerous factors other than trade policy.

• Hands-on: EII for Brazil exports to China in 2012

• How to interpret the result?
Where should a country ‘Specialize’?
 7. Revealed Comparative Advantage
Formula:

• Mathematical Formula: The RCA index is defined as the ratio of two

shares. The numerator is the share of a country’s total exports of the
commodity of interest in its total exports. The denominator is share of
world exports of the same commodity in total world exports.
• Definition: RCA attempts to explain the observed pattern of inter-
industry trade in an indirect manner, as relative prices noted in
theoretical models is not observed in real world. RCA indices use the
trade pattern to identify the sectors in which an economy has a
comparative advantage, by comparing the country of interests’ trade
profile with the world average.
• Range of values: Takes a value between 0 and +∞. A country is said to
have a revealed comparative advantage if the value exceeds unity.
• Limitations: The index is affected by anything that distorts the trade
pattern, e.g., trade barriers.

• Hands-on: India’s RCA profile in Service Sector vis-à-vis ASEAN

partners – Excel File
• To discuss later how to get data from Trade Map for RCA analysis
• How to interpret the result?
 How Competitive India is on Trade in Services? RCA Results
Sectors South
Australia China India Indonesia Japan Malaysia Singapore Korea Thailand

Transportation 0.52 0.99 0.66 0.82 1.30 0.54 1.94 1.92 0.69

Travel 2.47 1.11 0.54 1.57 0.31 7.27 0.70 0.53 2.65
Communications
services 0.94 0.41 0.53 2.93 0.22 3.48 0.00 0.36 0.51
Construction
services 0.06 3.36 0.26 1.07 3.03 0.41 0.59 6.56 0.43

Insurance services 0.35 0.75 0.86 0.05 0.50 1.08 1.24 0.24 0.16

Financial services 0.36 0.07 0.65 0.27 0.39 0.28 1.94 0.49 0.09
Computer and
information
services 0.55 1.23 5.94 0.18 0.15 5.99 0.00 0.08 0.02
Royalties and
license fees 0.26 0.06 0.03 0.06 2.95 0.02 0.23 0.67 0.06
Other business
services 0.57 1.29 1.18 1.09 1.22 0.58 0.87 0.76 0.62
Personal, cultural
and recreational
services 2.04 0.08 0.32 0.93 0.13 4.05 0.58 1.18 0.27
Government
services, n.i.e. 1.00 0.25 0.27 1.63 1.19 0.13 0.17 0.74 0.41

72
Source: Constructed from Trade Map Data
 Comparing Service RCA for EAC and India (2012)

Burundi India Kenya Rwanda Tanzania Uganda

Transportation 0.3 0.6 2.2 0.7 1.2 0.4

Travel 0.1 0.5 0.8 2.7 2.4 2.2

Communications services 0.0 0.5 4.0 1.5 0.6 0.5

Construction services 2.9 0.3 0.0 0.0 0.0 5.0

Insurance services 1.6 0.7 0.7 0.1 0.6 0.4

Financial services 0.2 0.5 0.7 0.0 0.1 0.2

Computer and information services 0.0 5.7 0.0 0.0 0.0 0.5

Royalties and license fees 0.0 0.0 0.1 0.0 0.0 0.1

Other business services 0.1 1.3 0.0 0.0 0.4 0.4

Personal, cultural and recreational
services 0.1 0.6 0.2 0.0 0.2 0.5

Government services, n.i.e. 92.0 0.2 12.1 9.3 0.7 5.0

Source: Constructed from Trade Map data

 The RCA Trends: 380850
12
India United States Vietnam Brazil China Cut-Off

10

0
2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Constructed from Trade Map Data

 7A. Additive RCA
Formula:

• Mathematical Formula: The ARCA index is defined as the difference

of two shares: The share of a country’s total exports of the
commodity of interest in its total exports and the share of world
exports of the same commodity in total world exports.
• Definition: The index is an alternative to the RCA index. Again, it is
used to identify the sectors in which an economy has a comparative
advantage, and to track changes over time. Unlike the RCA index, it is
symmetric (around zero).
• Range of values: Takes a value between −1 and +1. A country is said to
have a revealed comparative advantage if the value exceeds zero.
• Limitations: As with RCA, the index is affected by anything that
distorts the trade pattern, e.g., trade barriers. It does not identify
the source of comparative advantage.

• Hands-on: India’s RCA profile in Service Sector vis-à-vis

ASEAN partners – Excel File
• How to interpret the result?
 7B. Michelaye Index
Formula:

• Mathematical Formula: The index is defined as the difference of two

shares: The share of a country’s total exports of the commodity of
interest in its total exports and the share of the same country’s imports of
the same commodity in its total imports.
• Definition: The index is a second alternative to the RCA index, used to
identify the sectors in which an economy has a comparative advantage. Like
ARCA, it is symmetric around zero. The difference between Michelaye and
ARCA is that the former compares the export pattern of the country
under study to that export pattern of the world, while the latter compares
the export pattern of the country under study to its own import pattern.
• Range of values: Takes a value between −1 and +1. A country is said to have
a revealed comparative advantage if the value exceeds zero.
• Limitations: As with RCA and ARCA, the index is affected by anything that
distorts the trade pattern, e.g., trade barriers. It does not identify the
source of comparative advantage.

• Hands-on: India’s and Germany’s Michelaye in Merchandise

Exports – Excel File
• How to interpret the result?
 7C. RCA: Two Associated Concepts
• Revealed Comparative Disadvantage: When RCA>1, a given
country has a comparative advantage compared to focus
countries.
• When, in contrast, RCA < 1, the product is considered to be
having a revealed comparative disadvantage.
• Revealed Symmetric Comparative Advantage (RSCA): Suppose
RCA is defined as B.
• Then, RSCA = (B-1) / (B+1)
• RSCA takes values between -1 and 1, with values between 0 and
1 indicating a comparative export advantage and values between
−1 and 0 a comparative export disadvantage.
• Advantage: Since the RSCA distribution is symmetric around
zero, any potential bias in the coefficients is avoided

• Hands-on: Compare India’s Service RCA and RCDA with ASEAN –

Excel File
• How to interpret the result?
• Hands-on: Compare the RSCA for 271019 with other RCA
measures
 8. Lafay Index of Specialization

Formula:

• Mathematical Formula: The index is defined as the product of two derived

expressions, which are ratios of export and import values.
• Definition: The comparative advantage of country i in the production of
commodity j is thus measured by the deviation of product j’s normalised
trade balance from the overall normalised trade balance, multiplied by the
share of trade (imports plus exports) of product j on total trade.
• Range of values: Given that the index measures each group’s contribution
to the overall normalised trade balance, the following relation holds:
Positive values of the Lafay index indicate the existence of
comparative advantages in a given item; the larger the value the higher the
degree of specialisation. On the contrary, negative values points to de-
specialisation.
• Limitations: As with RCA and ARCA, the index is affected by anything that
distorts the trade pattern, e.g., trade barriers. It does not identify the
source of comparative advantage.

• Hands-on: India’s Lafay index in 2011; Germany’s Lafay index in

2012 – Excel File
• How to interpret the result?
 9. Export Specialization Index: Country Direction

Formula: ES = (Xij / Xit) / (Xkj / Xkt)

• Mathematical Formula:
• Xij is the export of product i from country j (to country t)
• Xit is the export of product i from country t (to country j)
• Xkj is the total export of country j to country t
• Xkt is the total export of country t to country j
• Definition: The index measures whether a country is exporting one
product more intensively to the other, in terms of proportional
importance in the export basket.
• Range of values: Takes a value between 0 and 1. Values greater than 1
indicate export specialization in the country j for the product i.
• Limitations: As with trade shares, high or low specialization indices and
changes over time may reflect numerous factors other than trade policy.

• Hands-on: India’s export specialization in automobile products

(HS 87) in the Thailand market - Excel File
• How to interpret the result?
 Export Specialization of India for HS 87 in
Thailand Market
1.77

1.8 1.54

1.6

1.4
1.06
1.2

1.0

0.8

0.6

0.4

0.2

0.0
2011 2012 2013

Source: Constructed from Trade Map Data

 India-US Export Specialization Scenario: 380850

200

ESI TB
150

100

50

0
2012 2015

-50

-100
Source: Constructed from Trade Map Data
How Integrated are the Trade
Patterns across countries?
 10. Trade Overlap Index
Formula:

• Mathematical Formula: For a given country, the sum over all sectors of
the smaller of exports and imports in that sector (the overlap)
multiplied by two, as a fraction of the total trade of that country.
• Definition: The trade overlap index is an alternative to the aggregate
IIT index. It reveals about the overall significance of intra-industry
trade relative to inter-industry trade in the trade profile of an economy
at a point in time. It is marginally easier to calculate than the aggregate
IIT index.
• Range of values: The index ranges from 0 to 1, with zero indicating pure
inter-industry trade, and one indicating pure intra-industry trade.
• Limitations: Same as for aggregate IIT, the index is subject to
aggregation bias (toward unity), both in terms of sectors and regions. It
is not appropriate for measuring changes in intra-industry trade (where
the marginal IIT index should be used).
• Hands-on: India’s Trade Overlap in Merchandise Exports – Excel File
• Compare the result with GLU, GLC and Acquino Index
• How to interpret the result?
 11A. Intra-Industry Trade Index: Grubel-Lloyd Index

Corrected Formula:

Uncorrected Formula: GLU  ( X

i ij  M ij )   i
X ij  M ij
 100
 (X i ij  M ij )

• Mathematical Formula: the overall implications on net trade, i.e., the

trade in intermediate products
• Definition: The index provides an overall measure of the relative
importance of IIT trade in an economy’s trade profile. Higher IIT
ratios suggest that the economies of scale and variety sources of
gains are being exploited. Sectoral IIT can also be constructed.
• Range of values: The index ranges from 0 to 1, with zero indicating
pure inter-industry trade, and one indicating pure intra-industry trade.
• Limitations: As for sectoral IIT, the index is subject to aggregation
bias (toward unity), both in terms of sectors and regions.

• Hands-on: India’s IIT profile in Merchandise Sector vis-à-

vis ASEAN partners – Excel File
• How to interpret the result?
 India’s Intra-Industry Trade with Select EU
Member Countries: Interpretation
New EU
EU (15) 2000 2009 2012 2000 2009 2012
Members

Belgium 0.42 0.39 0.37 Bulgaria 0.02 0.06 0.04

Czech
France 0.16 0.20 0.25 0.17 0.14 0.21
Republic

Germany 0.20 0.24 0.28 Hungary 0.10 0.27 0.24

Italy 0.20 0.24 0.30 Poland 0.05 0.12 0.14

Netherlands 0.13 0.14 0.12 Romania 0.02 0.04 0.20

Portugal 0.08 0.08 0.07 Slovakia 0.04 0.06 0.13

Spain 0.14 0.19 0.26 Slovenia 0.10 0.20 0.20

United
0.13 0.22 0.25
Kingdom

Source: Constructed from Trade Map Data

 Aquino (1978) Criticism
• The problem in GL stems from the fact that the index
depends on the values of i X ij  M .ij
• Now the specialty of this expression is that if for a
particular industry X ij  M ij , or X ij  M ij for all i, then its value
is exactly equal to i X ij  ,i M ij irrespective of the individual
values of Xij and Mij.
• Under these circumstances, both the numerator and the
denominator will have similar value and hence the IIT index
will be 100, which is not likely to depict the actual situation.
• The argument was that the correction for overall imbalance
should be performed at the elementary level, which requires
an estimate of what the values of exports and imports of
each commodity would have been if total exports has been
equal to total imports.
It is clear from IIT formula that when exports are exactly equal to imports, i.e.,
the entire trade is explained by IIT, the index is 100. On the other hand, when
either of these two is zero, then the index is zero, which means IIT no longer
exists. In other words, entire proportion of trade is explained by H-O-S theory.
 11B. Aquino Index
• The proposed index first calculates the theoretical values of
estimated export and import form the actual values based on
the equiproportionality assumption, denoting a superscript ‘e’
to them in the following manner:
X  X ij
e
*
i
(X  M
ij ij )
M ije  M ij *
 (X  M
i ij ij )
ij
2 X ij
2M i ij
i

• It is evident from the formula that:  X   M  12. ( X  M

e e
i ij i ij i ij ij )

• The Aquino index Aj is calculated by using the following

formula:
Aj 
 (X
e e
i ij  M ij )  i X ij  M ij
100
 (X
i ij  M ij )

• However, this measure has also been subjected to certain

criticisms from various quarters.

Formulation through Excel operations

 Sino-Indian IIT: Sectoral (Acquino Index)
HS 84 HS 85

53.3
60 48.8 72.24
43.98 80 66.17
50 59.49

40 60

30
40
20
20
10

0 0
2011 2012 2013 2011 2012 2013

HS 87
54.48 54.19
55
54
53
52 49.95
51
50
49
48
47
2011 2012 2013

Source: Constructed from Trade Map data

 What type of Integration in
prevailing within an Industry?
 11C. Horizontal – Vertical IIT
• It is argued differences in unit values (UV) of the
commodities can be assumed to represent the quality
difference among them.
• If UVX and UVM represent the unit values of export and
import items of an industry respectively, then the trade is
regarded as horizontal if the ratio of the unit values differ
by less than %, and vertical otherwise.
• In other words, for the trade to be horizontal, the
following condition must hold:
• 1 -   ( UVX / UVM )  1 + 
• If the above condition is violated, then the trade is
considered to be vertically differentiated. , the arbitrary
parameter, is generally 15% or 25%, have been used most
widely.
IIT explains trade in newer higher quality product
categories and disappearances of old lower quality products.
 11C. Horizontal – Vertical IIT
• Horizontal IIT – explained by economies of scale in the presence of
product differentiation and imperfect competition
• Vertical IIT – explained with resource and state of technology
difference
• The 15% threshold is used when the price differences are supposed to
reflect only quality differences, based on the assumption of perfect
competition, i.e., consumers will not purchase a similar, or lower quality
good at a higher price.
1. If the value of the ratio is less than 0.85 – it will be a case of low-quality
VIIT (LQVIIT)
2. If it is more than 1.15, it will be a case of high quality VIIT (HQVIIT)
3. If the ratio is between 0.85 to 1.15, it will be a case of horizontal IIT
(HIIT).
• However, in case of imperfect information, where price difference could
result from brand names as well, the 15% difference is too narrow.
• Instead of using 15% as the threshold limit, 25% should be the accurate
level for this purpose.

The sum of LQVIIT and HQVIIT would be equal to VIIT.

 The Type of Trade: India-US
30

Unit Price Ratio 1.2

25 TB (Mn.) Unit Price Ratio

1.0
TB (Mn.)
20
0.8

15
0.6

10
0.4

5
0.2

0
2011 2012 2013 2014 2015 0.0
2011 2012 2013 2014 2015
380899 – HQVIIT and High 380894 – LQVIIT and Low
Positive Trade Balance Positive Trade Balance
Source: Constructed from Trade Map Data
 11D: Marginal IIT
Formula:

• Mathematical Formula: One minus the ratio of the absolute value of

the change in exports in a given product category less the change
imports in the same category to the sum of the absolute values of the
changes in exports and imports in the category.
• Definition: Evaluating changes in IIT over time needs to be done
carefully, because the IIT index can remain constant even as the
volume of IIT expands. The marginal IIT index tells us how much of
the change in the volume of trade between two periods is intra-
industry trade.
• Range of values: The index ranges from 0 to 1, with zero indicating
pure inter-industry trade, and one indicating pure intra-industry trade.
• Limitations: As with the other IIT indices, the index is subject to
aggregation bias (toward unity), both in terms of sectors and regions.

• Hands-on: MIIT for India’s Overall Trade in 2010-11

• Importance in understanding the effect of economic liberalization
• Dynamic Aspect of production and trade – Failure of Grubel-Lloyd Index to
measure the same
• Smooth Adjustment Hypothesis