Academic journal article Indian Journal of Economics and Business

Growth and Pattern of Intra-Industry Trade in Manufactures in India's Overall Trade: A Quantitative Analysis

Academic journal article Indian Journal of Economics and Business

Growth and Pattern of Intra-Industry Trade in Manufactures in India's Overall Trade: A Quantitative Analysis

Article excerpt


This paper analyses empirical evidences of growing volume of intra-industry trade in India during 1975-1992. Quantitative evidences show that trade in manufactured products has increased with rapid industrialisation leading to genesis of intra-industry trade. Measures of Grubel-Lloyd Intra-industry trade indexes for India's trade with the world, the Asian economies and the developed countries are calculated. It shows that India's intra-industry trade is more with the developed countries than with the developing countries. Also, we observe that burgeoning volume of intra-industry trade is positively associated with (i) per capita GNP; (ii) trade openness; (iii) share of manufacturing exports in total exports.

Keywords: Intra-industry trade, India's trade pattern, Manufactures trade, trade openness, development, Grubel-Lloyd index.

JEL Classification: O1, F02, F15.


The empirical evidences of intra-industry trade in manufactures show that for the developed as well as developing countries, there has been growing volume of two way trade over time. With regard to trade between developed and developing countries, the average share of intra-industry trade (henceforth, IIT) has increased although not as much as in the case of the developed countries. This can be attributed, inter alia, to economic growth and rapid industrialization in those countries. A very rapid expansion in the manufactured exports from the less developed countries (LDCs) is evident especially in the countries that followed the outward-oriented policies. According to World Bank (1997), after the newly industrializing economies of East and South-East Asia, between 1985 and 1995, South Asia's annual average per capita income growth was 2.9 percent. In this paper, we evaluate India's (South Asia's most dynamic economy with considerable progress in high technology industries) intra-industry trade performance, examine the country's economic features and assess their relative importance as determining factors. The paper is organized as follows: next section outlines some of the stylized facts and Section 3 discusses the data and methodology. Section 4 reports the intra-industry trade indices for India over 1975-92. Estimation procedure and results are documented in Section 5. Finally, Section 6 summarizes.

Stylized Evidences of Intra-industry Trade in India

India is a labour abundant and capital scarce country. India imports technologically sophisticated goods from the advanced, industrialized nations in the world. Also, it produces enough to export the home variety of the same goods to countries that are almost at equal and/or, higher stages of development or that lie lower to it on the technological base. Such items are mostly manufactured goods whose share in IIT is rising. This suggests that although the structure is ideal for a Heckscher-Ohlin type of specialization, the genesis of such trade can not be overlooked. However, in comparison to the developed economies, India's proportion of IIT is small.

Empirical estimates of IIT for the individual less developed countries are relatively scarce. However, some work at the country group level focused on developed country's IIT with LDCs. [see Balassa (1985), Balassa and Bauwens (1987), Culem and Lundberg (1986), Dixon and Menon (1995), Havrylyshyn and Civan (1983, 1985), Tharakan (1984, 1989), Loertscher and Wolter (1980), Ocampo (1986), Bergstrand (1983), to name a few]. According to Havrylyshyn and Civan (1985), India's IIT in 1978 was 37.4 percent of total trade with the world as compared to 15.6 percent in 1968. India's IIT with the Nelwly Industrializing Economies was 15.1 percent in 1978 as compared to 17.0 percent in 1968. Thus, growing importance of IIT in India's trade is evident. Table 1 below presents the IIT indices [as calculated by Havrylyshyn and Civan, (1985)] by country for 1978. It is evident from the table that like other developing countries, there have been changes in India's trade pattern during 1968-1978. …

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