Does economic development cause intra-industry trade? The case of India: 1971 to 2000

Banerjee, Sarmila and Bhattacharyya, Ranajoy (2004): Does economic development cause intra-industry trade? The case of India: 1971 to 2000. Published in: Arthaniti , Vol. 3, No. 1 (2004)

Abstract

India’s intra-industry trade (IIT) is evaluated and analyzed from 1971 to 2000. IIT is found to have an upward trend with a growth rate that is close to the growth rate of GNP. A host of macro economic indicators are cointegrated with IIT suggesting that there is a stable relationship between IIT and the level of economic development of India. The causation of this relationship is not however unidirectional as the existing theoretical literature on IIT suggests. There is bi-directional causality for these variables. This implies that though economic development boosts IIT, it can equally be interpreted as a proxy for economic development and a predictor of future industrial progress rather than one that strictly follows it.

• Item Type: MPRA Paper
• Language: English
• Keywords: Intra Industry Trade; Economic Development; Causality
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development; F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies ; Fragmentation

References

Aturupane, C, (1999) “Horizontal and Vertical Intra-industry Trade between Eastern Europe and the European Union” Weltwirtschaftliches Archiv, Vol 135 no. 1, pp 62-81.

Bergstrand, J.H (1983) “ Measurement and Determinants of Intra-Industry Trade” in PKM Tharakan (Ed) Intra-Industry Trade: Empirical and Methodological Aspects. Amsterdam. pp 281-300.

Bhattacharyya, R, (1994) “India’s Intra Industry Trade: An Empirical Analysis”. Indian Economic Journal. Vol. 42 No.2 p 54-74.

— (2001) “Bilateral Intra-industry Trade in a Developing Country”, Journal of Quantitative Economics, 17, January 2001.

— (2002) “Vertical and Hoizontal Intra-industry Trade in some Asian and Latin American Less Developed Countries”, Journal of Economic Integration Vol. 17, No. 2.

Clark, Don P., and Stanley, Denise L (1999). “Determinants of Intra-industry Trade between Developing Countries and the United States” Journal of Economic Development, Vol. 24 No. 2, pp 79-94.

Dickey, D.A., Jansen, D.W. and Thornton, D.L. (1994) “A Premier on Cointegration with an Application to Money and Income”. in Cointegration for the Applied Economist (Ed.) B.Bhaskara Rao. St. Martin’s Press. New York.

Ekanayake M (2001). “Determinants of Intra-industry Trade: The case of Mexico” International Trade Journal, Vol. 15 No.1, pp 89-112.

Engle, R.F and Yoo, B.S. (1987) “Forecasting and Testing in Cointegrated Systems”. Journal of Econometrics. Vol. 35, p 143-159

Fuller, W.A. (1976) Introduction to Statistical Time Series, New York, Wiley

Globerman, S. and Deane, J.W. (1990) “Recent Trends in Intra Industry Trade and Their Implications for Future Trade Liberalization”. Weltwirtschaftliches Archiv. Vol.126, pp25-49.

Grubel, H. and Lloyd, P.J. (1975) Intra Industry Trade: The Theory and Measurement of International trade in differentiated Products. Macmillan. London.

Hamilton, J.D.(1994) Time Series Analysis.Princeton University Press. Princeton. New Jersey.

Havrylyschyn, O. and Civan, E. (1983) “Intra Industry trade and The Stages of Development: A Regression Analysis of Industrial And Developing countries.” in P.K. Tharakan (Ed) Intra Industry Trade: Empirical and Methodological Aspects Amsterdam pp 111-140.

Helpman, E. (1987) "Imperfect Competition and International Trade: Evidence From Fourteen Industrialized Countries", Journal of Japanese and International Economics,vol.1.

Holden, D. and Perman, R. (1994) “Unit Roots and Cointegration for the Economist” in B. Bhaskara Rao (ed) Cointegration for the Applied Economist, St. Martin’s Press, Nw York.

Internatinal Trade Statistics Yearbook, Volumes 1 and 2, 1989 to 1995. UN.

Johansen, S. and Juselius, K.(1990) “Maximum Likelihood Estimation and Inference on Cointegration with Applications to the demand for money”. Oxford Bulletin of Economics and Statistics. Vol. 52 pp 169-210.

Joshi, V. and Little, I.M.D. (1994) India, Macroeconomics and Political Economy, 1964-1991.Oxford University Press. Delhi.

Kandogan, Y. (2003). “ Intra Industry Trade of Transition Countries: Trends and Determinants”, William Davidson Working Paper Number 566, University of Michigan-Flint.

Katrak, H.(1985) “Imported Technology, Enterprise Size and R&D in a Newly Industrializing Country: The Indian Experience” Oxford Bulletin of Economics and Statistics. Vol. 47, No. 3.

Kathuria, S. (1995) “Competitiveness of Indian Industry” In D.Mookherjee (Ed) Indian Industries: Policy and Perpective”.Oxford University Press. New Delhi.

Krugman, P.R. (1979) “Increasing Returns, Monopolistic Competition and International Trade”. Journal of International Economics. Vol.9, pp 469-479.

— (1981) “Intra Industry Specialization and Gains from Trade”. Journal of Political Economy. Vol. 89, pp 959-973.

Lee, Y.S (1990) “A Study of the Determinants of Intra Industry Trade Among the Pacific Basin Countries” Weltwirtschaftliches Archiv. Vol.126. No. 1. pp 347-358.

Mathur, A. (1992) “Understanding India’s Policy Towards Foreign Direct Investment”. in Foreign Direct Investment and Technology Transfer in India. U.N.. New York.

Mehra, Y.P. (1994) “Wage Growth and the Inflation Process: An Empirical Approach” in B. Bhaskara Rao (ed) Cointegration for the Applied Economist, St. Martin’s Press, Nw York.

Panchamukhi, V.R. (1997) “Quantitative Methods and their Applications in International Economics”, in K.L. Krishna (Ed) Econometric Applications in India, Oxford University Press, Delhi

Patibandla, M.(1992) “Scale Economies and Imports in an Export Substituting Regime: Some observations for the Indian Economy”. Economic and Political Weekly.

Rodrik, D. (1988) “Imperfect competition, Scale Economies and Trade Policy in Developing Countries” in.

R.E.Baldwin(Ed.) Trade Policy Issues and Empirical Analysis. University of Chicago. London.

Shaked, A. and Sutton, J. (1989) “Natural Ologopolies and International trade”. in H.Kierzkowski (Ed.) Monopolistic Competition and International Trade. Clarendon Press. Oxford.

Thrakan, P.K.M (1986) “Intra Industry Trade of Benelux With The Developing World” Weltwirtschaftliches Archiv. Vol. 122.pp 131-149.

Vona, S. (1991) “On The Measurement of Intra Industry Trade: some Future Thoughts” Weltwirtschaftiches Archiv. pp 1182-92.