Page 81 - DECO503_INTERNATIONAL_TRADE_AND_FINANCE_ENGLISH

Dilfraz Singh, LPU Unit 7 : Causes of Emergence and Measurement of Intra-Industry Trade and Its Impact on Developing Economics

Unit 7 : Causes of Emergence and Measurement of Intra- Notes
Industry Trade and Its Impact on
Developing Economics

CONTENTS
Objectives
Introduction
7.1 Models of Intra-Industry Trade: Basic Theoretical Underpinnings
7.2 Intra-Industry Trade: Recent Empirical Evidences Using A Global Database
7.3 Measurement of Intra-Industry Trade
7.4 The Balassa and Grubel-Lloyd Indices
7.5 Measuring Marginal Intra-Industry Trade
7.6 Disentangling Horizontal and Vertical Intra-Industry Trade
7.7 Intra-Industry Trade Theory and Developing Economics
7.8 Summary
7.9 Key-Words
7.10 Review Questions
7.11 Further Readings

Objectives

After reading this Unit students will be able to:
• Discuss the Causes of Emergence and Measurement of Intra-Industry Trade.
• Explain the Balassa and Grubel-Lloyd Indices.
Introduction

Having earlier noted that in the European Common Market "much of the increased trade in
manufactures occurred within rather than between commodity groups" . An explanation of this
phenomenon in terms of product differentiation in consumer goods, machinery, transport equipment,
and intermediate products and introduced statistical indicators to measure the extent of intra-industry
specialization.
Subsequently, additional evidence was provided on the extent of intra-industry specialization in
manufactured goods among the EEC countries. For purposes of empirical measurement, an industry
has been defined to include commodities that have high substitution elasticities in production. In
practice, limitations of data availability have led to the use of a 91 industry classification scheme
consisting of 3-digit and 4-digit items in the U.N. Standard International Trade Classification (SITC),
and combinations thereof.
The use of a technological definition of an industry is not open to the strictures Lipsey (1976) addressed
to subsequent work by Grubel and Lloyd (1975), who employed 3-digit SITC categories in the
calculations regardless of the technological characteristics of the product within each category.
And although a further disaggregation of the data would be desirable in particular instances, Hesse
(1974) and Willmore (1974), respectively, have shown that a high degree of intra-industry specialization
is apparent in the European Common Market and the Central American Common Market, even if a
very dis-aggregated commodity classification scheme is employed. At any rate, recognizing the
limitations of the use of the statistical indicators to measure the extent of intra-industry specialization

LOVELY PROFESSIONAL UNIVERSITY 75