Intra-Industry Trade And Development: Revisiting Theory, Measurement And New Evidences

Abstract

In this paper, role of international trade in economic development is discussed, both from the perspective of theoretical development and empiricism. In particular, it revisits theories pertaining to intra-industry and inter-industry trade and presents evidences of resilience in intra-industry trade. With globalization, trade in technology-intensive and manufactured products has increased intra-industry trade. Review of the theoretical and empirical literature reveals that this kind of trade is explained by variations in taste patterns, diversified preference structure, scale economies, technological change, and income level, amongst other things. After discussing computational issues related to level of aggregation of industry for measuring the extent of such trade, using Global Trade Analysis Project's (GTAP) database, we provide recent measures of Grubel-Lloyd Intra-industry trade indexes for the world economies. It shows that a country's intra-industry trade is growing in volume especially with fragmentation of production process. Also, we observe that burgeoning volume of intra-industry trade is positively correlated with: (i) per capita GNP; (ii) trade integration; (iii) share of manufacturing exports in total exports; (iv) technology intensiveness of the production process; (v) variety-seeking demand patterns.