INTRA-INDUSTRY TRADE AMONG SAARC NATIONS

Transcription

1 CHAPTER V INTRA-INDUSTRY TRADE AMONG SAARC NATIONS

2 CHAPTER V INTRA-INDUSTRY TRADE AMONG SAARC NATIONS 5.1. Introduction 5.2. Need for Intra - industry Trade analysis 5.3. Various measurements of intra - industry trade 5.4. Theoretical back ground of intra - industry trade 5.5. Intra - industry trade between Bangladesh and Pakistan 5.6. Intra - industry trade between Bangladesh and Sri Lanka 5.7. Intra - industry trade between Bangladesh and India 5.8. Intra - industry trade between Bangladesh and Nepal 5.9. Intra - industry trade between India and Nepal Intra - industry trade between India and Sri Lanka Intra - industry trade between India and Pakistan Intra - Industry trade between India and Bangladesh Intra - Industry trade between Nepal and Sri Lanka Intra - Industry trade between Nepal and Pakistan Intra - Industry trade between Nepal and Bangladesh Intra - Industry trade between Nepal and India Intra - Industry trade between Pakistan and India Intra - Industry trade between Pakistan and Bangladesh Intra - Industry trade between Pakistan and Sri Lanka Intra - Industry trade between Pakistan and Nepal Intra - Industry trade between Sri Lanka and India Intra - Industry trade between Sri Lanka and Bangladesh Intra - Industry trade between Sri Lanka and Pakistan Intra - Industry trade between Sri Lanka and Nepal

3 CHAPTER - V INTRA-INDUSTRY TRADE AMONG SAARC NATIONS 5.1. INTRODUCTION Since its emergence in the late 1960 s, the concept of intra-industry trade (NT) has made an enormous impact on the empirical and theoretical analysis of international trade and on ensuing policy recommendations. Balassa (1966) was first in asserting that the observed increase in IIT might imply that the difficulties of adjustment to free trade have been generally over estimated. It has been commonly perceived ever since that the observed rise in IIT across the industrialized world greatly facilitated trade liberalization by reducing pressures for each country to concentrate production on a narrow range of industries according to its comparative advantge.1 Economic interactions among the high-income developed countries are characterized by high degrees of both intra-industry trade and intra-industry affiliate production and sales.2 Traditional trade theory implies that one of the major benefits associated with the movement of goods between regions is due to greater specialization in accordance with the principle of comparative advantage. Recent trade theory, on the other hand, notes that a large volume of trade takes place between regions with similar resource endowments and is intra-industry in nature. Intra-industry trade is explained in terms of increasing returns to scale, and one of the main benefits of intra-industry trade is greater product variety enjoyed by consumers.3 The phenomenon of simultaneous intra-industry trade and intra-industry investment has long drawn a lot of attention from trade theories. In the trade literature, intra- industry trade and intra industry investment are usually handled separately. Following the work of Grubel and Lloyd (1975)4, which shows the importance of intra-industry trade, Brander(1981)5 and Brander and Krugman(1985)6 130

4 analyse intra-industry trade in Oligopolistic markets while Karugman(1979,1980,1981) 7, Lancaster (1980) 8 and Helpman (1981) 9 show how intra-industry trade may exist in the presence of monopolistic competition. More recent work such as Clegg (1990)10 considers intraindustry capital movements. Rowthorn (1992)11 is more successful work on intra- industry trade and intra industry investment NEED FOR INTRA-INDUSTRY TRADE Intra - Industry trade shows trade in close substitute goods that are demanded by consumers from different countries with different preferences. Many studies suggest that the more developed countries, the more specialized trade structure and thus the higher IIT would be. Thus, industrialized countries like some OECD members expected to have very small IIT. Examining IIT variations in time can yield useful insights for adopting suitable trade policies. In addition, by considering IIT in different categories of products, we can determine categories, which they are significant advantages for specialization in them. This is helpful in trade decision making and to some extent determine how well we can compete in new trade environment and what adjustments are required. The increasing extent of intra-industry trade in the world trading system has some important implications for adjustment of economies to increase trade. By increasing trade, the size of economic sectors may change. Sector experiences increase in imports and exports, simultaneously. Therefore, there is no need for shift in resources between sectors. It will decrease the adjustment of trading. As Grimwade says: Intra-industry specialization is likely to give rise to fewer adjustment problems than Inter-industry specialization necessitates a movement of resources from import-competing to 131

5 export competing industries. Adjustment problemscan arise where resources, especially labour, are geographically and occupationally immobile in the short run. Large-scale structural employment might result. To large extent, intra-industry specialization is achieved without the necessity for workers to leave a particular industry or region. The risk of structural unemployment is reduced (Grimwade, 1989). Balassa(1979) also concluded that integration efforts in the post-war world have contributed to increased intra-industry trade among developing countries. Tharakan (1983) summarized the studies on intra-industry trade and observed the following on the basis on the survey and the study conducted by J.Koi and L.B.M Mennas(1983) and D.Greenaway (1983). a. The possibilities for intra-industry trade will increase as the partner countries are similar with respect to income per capita. b. Intra-industry trade will comprise a larger part of total trade. c. The scope for intra-industry trade will be broadened with less trade barriers and less geographical distance. d. Intra-industry trade will be more in large countries than in small countries. e. The average level of intra-industry trade will be more in developed countries than in less developed countries. f. Intra-industry trade will be less for primary products and raw materials than for manufactured products VARIOUS MEASUREMENT OF INTRA-INDUSTRY TRADE Measurement issues are at the heart of the recent literature on IIT and adjustment. Different types of trade are captured in measurements of intraindustry trade: horizontal trade in similar products with differentiated products distinguished by quality and price: and vertical specialization of production 132

6 that the results in trade in similar goods at different stages of production. Horizontal intra-industry trades enables countries with similar factor endowments to benefit from economies of scale by specializing in niche products. Trade in vertically differentiated products may reflect different factor endowments, particular skills of the workforce or high fixed research and development costs.14 Vertical specialization of production across countries may be driven by comparative advantage, for example to use cheap unskilled labour for assembly purposes or specialized personnel for research and development Hamilton and Kneist (1991 )16 argue that using the change in the Grubel- Lloyd index of I IT to identify low-adjustment-cost trade can lead to potentially serious measurement error. In response, a growing body of papers examines the algebraic properties of various measures of marginal intraindustry trade (MlIT), seeking to determine their relative suitability as measures of the low adjustment- cost component of increased trade (Azhar, Elliott, and Milner 1998)17. Despite the obvious importance of this empirical work for general assessment of the desirability of trade agreements, the theoretical foundations for Ml IT measures have been examined in only a rudimentary 1 ft way. Analysis of I IT has developed in close relationship with both the analysis of trade liberalization and the analysis of adjustment to international trade. In their now classic analyses of the trade effects of early European efforts at economic integration, Verdoorn (1960), Dreze (1960, 1961), and Balassa (1966), all emphasized the empirical importance of IIT. Balassa's work, in particular, laid the foundation for what has become an enormous empirical literature on the measurement of NT.19 Various methods for measuring level of intra-industry trade are available, e.g. the index which Verdoorn (1960) used was defined as: XiHB Ai = XiBH 133

7 Where XiHB stands for Dutch exports of product i to Belgium and Luxembourg and XiBH for exports of the same product I by the latter of Holland. This ratio lies between 0 and 1. The movement of the ratio towards unity in a given industry over a period suggests a tendency towards intra-industry specialization. Michaely (1962) developed the intra-industry index as follows: m Xi Mi D = S = 1 X M Where X and M are country s total exports and imports and Xi and Mi are exports and imports of category I as defined. According to this formula, the value of index lies between 0 and 2. The index of 0 suggests a case of perfect similarity of exports and imports and an index of 2 implies perfect inter-industry trade. Kojima (1964) estimated the degree of horizontal trade in product I between countries A and B as follows: Di XiB = X100 if XiA > XiB XiA (or) Dj XiA _ X 100 if XiA < XiB XiB Where X and M stand for exports and imports respectively. When Di is nearer to 100, higher is the level of horizontal trade and vice versa. Balassa (1966) developed to verify whether the formation of the EU had led to inter- or intra-industry specialization was as follows: 134

8 Ci n I Xi - Mi Xi + Mi If the exports in category i would tend towards equality, the ratio would approach zero which would signify a high proportion of intra-industry trade. If the ratio is one it indicates the inter-industry trade. Grubel and Lloyd (1975) have developed the index of measuring the level of intra-industry trade which is used more extensively. [ (Xi + Mi) Xi - Mi ]* 100 Bi (Xi + Mi) (or) GL = 1- Exi - Imi Exi + Imi The level of aggregation of i can be at different levels of SITC classification. The index lies between 0 and 100 with the former representing complete intraindustry trade. Brulhart (1994) used the Model: B = i[(ax + lamj)- \\Xt - AM, 1 II------Li'J-----' lUx 100 ( ax, + am,. ) 135

9 This index, like the GL measure, varies from 0 to 100. The closer the value of B to 100, the greater the share of NT in the change in trade flows between the two years in question. Conversely if B is closer to 0, the higher the contribution of inter industry trade is in the change in trade. As the B index relates to the change in trade flows, it is a more "dynamic" measure. The analysis of marginal NT is important because an increase in interindustry trade will show up as an increase in the GL index when the increase in interindustry trade reduces the trade imbalance in the sector for which the measure is carried out (Hamilton and Kniest 1991) THEORETICAL FRAMEWORK OF INTRA-INDUSTRY TRADE Obviously, many theorists apply in their models the most complete definition of the goods similarity appealing to the product group. For example, goods traded in the framework of Brander(1981) or Brander, Krugman (1983) are physically identical. Consumer s demand in both trading countries is described with the same linear function. The goods are produced by the local monopolies with identical production functions with intra-firm increasing returns to scale (in fact, Brander and Brander, Krugman do not even describe the production function but only the total cost function with the fixed and the marginal cost components). The monopolistic competition in the Krugman s setting (1980) analyses goods from the group. The firms within the industry face the same costs. They are operating on the negatively sloped average cost curve (exactly as in Brander and Brander, Krugman the goods are produced with the intra-firm increasing returns to scale). The assignment of the goods is set by the consumer s love of variety (preferences as in Dixit - Stiglitz (1977). All Krugman s consumers want to have as many varieties as possible. Every variety is also a perfect substitute of any other. The consumers preferences can be visualized as the utility 136

10 n U = 2 v(cj), im function of the representative consumer, which v(ci)- utility from consuming ci >o units of variety I (v(ci) > o; v (ci) < o). In equilibrium (with a given budget constraint) every one is buying the same amount of every variety. Intra-industry trade flows are conventionally defined as the twoway exchange of goods within standard industrial classifications. The extent of intra-industry trade is commonly measured by Grubel-Lloyd indexes based on commodity Group transactions. Thus, for any particular product, an index of the extent of intra-industry trade in the product has been identified as above given equations. YENER KANDOGAN (2003)20 analyzed Intra-industry Trade of Transition Countries: Trends and Determinants" This paper analyzes trends in different components of trade of transition countries. To explain the crosscountry differences, the paper points out the important distinction between the determinants of inter-industry trade and intra-industry trade (IIT), and horizontal and vertical IIT. especially in horizontal IIT, whereas factors such as comparative advantage, dissimilarity in income levels, and having more developed trade partners of Heckscher-Ohlin Trade Theory are crucial in determining inter-industry trade and vertical IIT to a lesser degree. Saud Choudhry (1992)21 compared India s export performance in the ASEAN and SAARC economies. The paper uses a new methodological approach to measure the regional orientation of India's exports and their revealed comparative advantage. The findings suggest that Indo- ASEAN trade, even after all these years, must still be seen mainly in terms of its potential thus confirming its marginal status. Considering that this paper is primarily focussed on India s exports to ASEAN vis-a-vis the SAARC countries, we will estimate the regional trade intensity index (Rij) defined as: R 137

11 ij = (Xij - Xi ) / (Mj / MT - Mi) Where Xij is lndia_s exports to country j; Xi is lndia_s total exports to the region (ASEAN + SAARC); Mj is country j s imports; MT is total regional imports; and Mi is India s total imports. This intensity of trade measure uncovers any tendency for two countries to trade more or less heavily with each other. Its usefulness lies in the fact that it can capture the relative importance of seemingly minor changes in trade between two countries, even when the two account for a relatively small proportion of the total regional trade. Bashir A. Qasmi Scott W. Fausti (2001 )22 NAFTA Intra-industry Trade in Agricultural Food Products This paper focused on NAFTA s impact on intra-industry and inter-industry trade in agricultural food products. Bilateral trade among the United States, Canada, and Mexico and their trade with the rest of the world during 1990 and 1995 are investigated. The study shows that U.S. trade patterns for agricultural food products ar^ slowly changing. The proportion of the intra-industry trade was higher for food products involving a greater degree of processing, whereas trade in bulk commodities with little or no processing was predominantly inter-industry.the study also indicated a decline in the proportion of intra-industry trade in U.S. trade with the rest of the world during this period. Mark J. Melitz (2002)23 examined the Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity. The paper shows how the exposure to trade will induce only the more productive firms to enter the export market and will simultaneously force the least productive firms to exit. It then shows how further increases in the industry's exposure to trade lead to additional inter-firm reallocations towards more productive firms. The paper adapts Hopenhayn's (1992a) dynamic industry model to monopolistic competition in a general equilibrium setting. In so doing, the paper provides an extension of Krugman's (1980) trade model that incorporates firm level productivity differences. 138

12 Takashi Isogai Hirofumi Morishita 24 (2002) Analysed Intra- and Interregional Trade in East Asia:Comparative Advantage Structures and Dynamic Interdependency in Trade Flows: during the 1990s. The main purpose of the analysis is to gain a better understanding of the potential global impact of these changes. The main finding is that there are quantitatively significant indirect international transmission channels of country-specific shocks along the international production chain, with substantial differences in the exposure to such shocks between Japan and the US. Hassan Kalbasi (Ph.D),25 (2002 ) defined various Modeling and Patterns of Intra-Industry Trade : Iran s Case Study. The aim of this paper is to provide an empirical analysis of Intra-Industry Trade (IIT) in Iran from a number of perspectives. Theoretical background of intra-industry trade will be discussed and then the pattern of IIT will be identified across categories of SITC and trends in this pattern examined. Indeed, the Grubel - Lloyd intraindustry trade (IIT) index is an indicator of the degree of industrial specification to study Iran ability to compete in a more open trade setting. Grubel and Lloyd (1975) studied the case of to countries of OECD. Through this study, they established a new index: (Xi + Mi) - Xi - Mi Bi = = 1- (Xi + Mi) Xi -Mi ( Xi + Mi) It is clear that intra-industry trade is the proportion of trade that is not interindustry. If there is no intra-industry trade, one of Xi or Mi will be zero so that the IIT index will be zero, Similarly, if all trade is intra-industry, Xi=Mi and hence the IIT index will be equal to I.The results of the paper shows that Iran IIT levels with OECD rend to Zero and thus Iran does, have a very low industrial base relative to these countries. MinKyoung Kim, Gue Dae Cho, and Won W. Koo. (2003)26, Asymmetric Pattern of Intra-industry Trade Between the United States and 139

13 Canada" This study proposes alternative rationales to explain an asymmetric intra- industry trade pattern between the United States and Canada after the free trade agreement became effective. Using time-series data, a gravity equation is developed which enables us to examine the impacts of relative market size, exchange rates, and transportation costs on bilateral trade. It is found that these three effects have to be taken together in order to explain the asymmetric intra-industry trade pattern. Pinar Narin Emirhan (1992)27examined the intra-industry trade dynamics of Turkey. The study measured the intra-industry trade levels for various levels empirically. Unadjusted Grubel and Lloyed (1975) is used to calculate IIT levels in the study and they reveal that overall NT is quite high (35 percent on average) for Turkey and in some manufacturing industries it even rises to 90 percent. James R. Markusen, Keith E. Maskus (2001 )28 analysed the Unified Approach to Intra-Industry Trade and Direct Foreign Investment. The purpose of this paper is to show how the theory of direct investment can now be integrated with the theory of international trade in goods, and to show how the two combine to determine the pattern of trade and foreign affiliate production. Empirical estimation gives good supportto the predictions of the theory for intra-industry affiliate sales, with somewhat weaker results for intra-industry trade. Results confirm that the intra-industry affiliate sales index rises relative to the intra-industry trade index as countries become richer and more similar in size and in relative endowments. Anthony J. Venables, Patricia G. Rice, and Martin Stewart (2003)29 analysed the Geography of Intra-Industry Trade: empirics. This paper uses bilateral trade data for OECD countries at the 3-digit industry level to investigate the geography of intra-industry trade (IIT). IIT diminishes with distance and much of the existing empirical literature suggests that this is an inherent characteristic of such trade, arguing that trade in sectors intensive in IIT is choked off rapidly by istance. We show that the dependence of IIT on geography arises not because 140

14 of any inherent feature of the effects of distance on such trade, but because of the spatial structure of countries supply and demand characteristics; close countries do a lot of I IT because they have similar economic structures. Kankesu Jayanthakumaran(2004) 3 analysed the Impact of Intra-Industry Trade on Employment of Australia. This paper investigated dynamic aspects of labour market adjustment in Australia during 1989/90 and 2000/01 due to extensive trade reforms and associated developments in intra-industry trade. In view of the foregoing, it was hypothesized that trade reforms have had a positive impact on employment to the extent that trade flows are intra-industry. We do find that declining protection over this period is associated with increased employment to the extent that trade flows are intra-industry Jeffrey H. Bergstrand Peter Egger (2004)31 examined Trade Costs and Intra-Industry Trade. In the context of a Helpman-Krugman cum trade costs model, it derives four empirically testable hypotheses regarding intra-industry trade and trade costs. The hypotheses are investigated empirically using a cross-section of bilateral OECD Grubel-Lloyd indexes. The results are strongly in accordance with the hypotheses, indicating the importance of a more rigorous and systematic treatment of trade costs in the intra-industry trade literature. Bhavana S. Kantawala (1997) 32analysed inter- and intra-industry international trade among SAARC countries. In the light of the above, the present study attempt to construct the index of intra- industry trade for each member of SAARC countries considering exports and imports at three-digit level of SITC for 1981 and 1992 using the method developed by Grubel and Lloyd. Bi [ (Xi + Mi) Xi-Mi ]* 100 (Xi + Mi) Bi n Z (Xi + i n Z Xi-Mi i 100 (Xi + Mi) 141

15 He concluded that the SAARC is not successful in boosting the volume of trade among member countries. Moreover, the structure of exports and imports of each member country with SAARC countries and with world as a whole differs significantly. In the light of the above discussion, the present study attempts to construct the index of intra-industry trade for each member of SAARC (except Maldives and Bhutan due to unavailability data) countries exports and imports at all digital level of SITC for 1990 to 2005 using the method of Verdoom (1960), Vr = XiHB X100 XiBH Where, XiHB = Exports of ith item to H country to country B XiBH = Imports of ith item from B country to country H 140 and using the method of Grubel and Lloyd (1975): Exi - Imi GL 1- (Exi + Imi) Where, Exi = Exports of ith item to country A to country B Imi = Imports of ith item from country B to country A The whole SITC code has been analysed and the following SITC code of industries and found that the following items have an appropriate intraindustries trade among SAARC nations. 142

16 SITC Code: 3 = Mineral fuels, lubricants and related materials 4 = Animal and vegetable oils, fats and waxes 5 = Chemicals and related products 6 = Manufactured goods classified chiefly by material 7 = Machinery and transport equipment 9 = Commodities and transactions not classified elsewhere in the SITC 22 = Oil seeds and Oleaginous fruits 26 = Textile fibers 28 = Metalliferous ores and metal scrap 29 = Crude animal and vegetable materials 51 = Organic chemicals 52 = Inorganic chemicals 53 = Dyeing, tanning and coloring materials 54 = Medicinal and pharmaceutical products 57 = Plastics in primary forms 59 = Chemical materials and products 62 = Rubber manufactures 63 = Cork and wood manufactures other than furniture 64 = Paper, paperboard and articles and paper pulp, paper or paper board 65 = Textile yarn, fabrics, made-up articles, and related products 69 = Manufactures of metals 72 = Machinery specialized for particular industries 77 = Electrical machinery, apparatus and appliances, and electrical parts thereof (including non-electrical counterparts of household type) 78 = Road vehicles (including air-cushion vehicles) 84 = Articles of apparel and clothing accessories 89 = Miscellaneous manufactured articles 143

17 93 = Special transactions and commodities not classified according to kind 931 = Special transaction and commodities not classified according to kind 9310 = Special transaction and commodities not classified according to kind. * All the data has been collected through United Nations Statistical Division-Commodity trade Statistics Data base (COM TRADE). The analysis was being made off by classifications of industries (i) Agricultural commodities, (ii) Chemicals, (iii) Engineering, (iv) Gems and Jewelry, (v) Manufacturing, (vi) Minerals and Ores, (vii) Ready made Garments, (viii) Other than. # There are SITC code of items have been analysed to find out the intra-industry trade among the SAARC nations. They are: 144

18 SITC TABLE: 5.1 INTRA-INDUSTRY TRADE BETWEEN BANGLADESH AND PAKISTAN Descriptions 5 Chemicals and related products 52 Inorganic Exports Bangladesh 1990 TO 2005 Imports Pakistan GL (I IT) Vr (IIT) Chemicals Cork and Wood manufactures other than furniture 93 Special Transactions and commodities not classified (1)

19 5.5. INTRA-INDUSTRY TRADE BETWEEN BANGLADESH AND PAKISTAN A large theoretical literature has emerged directed at explaining the presence of intra-industry trade (IIT). One of the distinctions which comes out of these models is that between horizontal IIT (where goods are differentiated by attributes) and vertical IIT (where goods are differentiated by quality). Intra-industry trade, based upon the similarity of nations, may lead to cost free gains associated with variety. In contrast, inter-industry trade, traditionally associated with comparative advantages of nations, may lead to more costly adjustments, may lead to more costly adjustments, as trade and specialization move factors from contested export-oriented industries. To make our result with simplification the products have been classified four categories. (i) (ii) (iii) (iv) If indices value between 0.0 to there may be strong inter-industry trade tendencies. If indices value between 0.25 to there may be weak inter-industry trade tendencies. If indices value between 0.50 to there may be weak intra- industry trade tendencies. If indices value between 0.75 to there may be strong intra-industry tendencies. These seven SAARC nations may have similarities in Geographical, political, legality and economic factors. But whether there is similarity in intra - industry trade and inter industry trade?. It could be verified only empirically. It is hypothesized that the SAARC nations have more intra-industry trade, based upon the similarity in character and environments. In this context, intra-industry trade among Bangladesh to Pakistan, (Tabie:6.1) Pakistan to Bangladesh have not significantly reliable. There were only five industries that could be grouped as intra-industry tradable industries in between the two countries(pakistan & Bangladesh). It is estimated that both chemicals and allied products and cork and wood manufactures other than furniture, intra-industry trade among these countries were found to have intra - industry linkage. Inorganic chemicals and special 145

20 transactions & commodities not classified according to SITC among the SAARC nations show strong inter-industry trade tendencies. It is realized that these industry trade traditionally associated with comparative advantages to nations. Pakistan has more advantageous nation with specialization of inorganic chemicals and special transactions and commodities exports to Bangladesh. It may be mentioned here these two industries trade traditionally associated with comparative advantage of the nation. This leads the researcher to infer that industries with comparative advantages display higher tendency to inter-industry linkages between Bangladesh and Pakistan. 146

21 TABLE: 5.2 INTRA-INDUSTRY TRADE BETWEEN BANGLADESH AND SRI LANKA 1990 TO 2005 SITC Descriptions Exports Bangladesh Imports Sri Lanka GL (NT) Vr (NT) 3 Mineral fuels, Lubricants and related materials Animal and vegetable oils,fats and waxes Chemicals and related products Machinery and Transport equipment Oil seeds and Oleaginous fruits Textile fibers Crude animal and vegetable materials Contin 5(2)

22 53 Dyeing, Tanning and coloring materials Plastics in primary forms Chemical materials products and Cork and wood manufactures other than furniture Paper, paper board, paper pulp Textile yarn, fabrics, made-up articles Manufactures of metals Machinery specialized particular industries for Road vehicles 84 Articles of apparel and clothing accessories 89 Miscellaneous manufactured articles (2)

23 5 6. INTRA-INDUSTRY TRADE BETWEEN BANGLESH AND SRI LANKA Bangladesh and Sri Lanka, have the socio-economic characters similar in nature. There may be some reasons for intra and inter-industry trade where goods are differentiated by attributes and differentiated by quality. Most of the industries trade among Sri Lanka and Bangladesh especially in intra-industry trade witnessed that Sri Lanka has more advantageous in SAARC nation with Bangladesh. It is noted that mineral fuels, lubricants and related materials, animal and vegetable oils, fats and waxes, chemicals and related products, machinery and transport equipments, oil seeds and oleaginous fruits, textile fibers and other wastes, crude animal and vegetable materials, dyeing, tanning and coloring materials, plastics in primary forms, chemical materials and products, paper board and articles of paper pulp, manufactures of metal, machineries specialized for particular industries, road vehicles and miscellaneous manufactured articles have more advantageous industries. They may have more comparative advantages in factors of production, specialization in technology and less cost advantages. The indices shows that the Sri Lanka has a strong inter-industry trade tendencies. The chemical materials & products and textile yarn, fabrics, made-up articles have been proved that there may be weak inter-industry trade tendencies. These industries might not have vast heterogeneous character and there may be horizontal I IT (where goods and differentiated by attributes). Among these two SAARC nations, a particular industry (articles of apparel & clothing accessories ) has weak intra-industry tendencies as it has recorded All other industries showed strong intra - industry relationship. 147

24 SITC TABLE: 5.3 INTRA-INDUSTRY TRADE BETWEEN BANGLADESH AND INDIA Descriptions 5 Chemicals and 1990 TO 2005 Exports Bangladesh Imports India GL (NT) Vr (NT) related products Manufactured goods Commodities and transaction not classified elsewhere in SITC 29 Crude animal and vegetable materials Organic chemicals Inorganic chemicals Manufactures of metals Special Transactions and commodities not classified according to kind (3)

25 5.7. INTRA-INDUSTRY TRADE BETWEEN BANGLADESH AND INDIA India is the biggest nation in SAARC where the intra-industry trade with Bangladesh not significantly impressive. The chemicals and allied products industry, manufactured goods classified chiefly by material (SITC:6), commodities and transactions not classified elsewhere in the SITC (SITC:9) and special transactions and commodities not classified according to kind (SITC:93) industries have very strong inter-industry tendencies. It implies that India has more comparative advantage of these industries in international trade. It shown that the factors of production may have a least cost with most specialization of production and transport cost. In among the countries, India has more advantageous to export crude animal & vegetable materials, organic chemicals and manufacture of metals. India may have taken Bangladesh is an appropriate country for elaborating intra-industry trade through multilateral agreement by SAARC. The inorganic chemical industries have weakened inter-industry tendencies recorded IIT indices is In over all scenario encompassed that India has vital opportunities for improvising intra-trade with Bangladesh vice-versa. 148

26 SITC TABLE: 5.4 INTRA-INDUSTRY TRADE BETWEEN BANGLADESH AND NEPAL Descriptions 7 Machinery and 1990 TO 2005 Exports Bangladesh Imports Nepal GL (IIT) Vr (IIT) Transport equipment Medical and pharmaceutical products Textile yarn, fabrics, made up articles Manufactures of metals Machinery specialized for particular industries Electrical machinery, apparatus appliances. and Articles of apparel and clothing Miscellaneous manufactured articles (4)

27 5.8. INTRA - INDUSTRY TRADE BETWEEN BANGLADESH AND NEPAL Bangladesh and Nepal s economic, political, legal and economic environments have more or less similar in nature does not have vast variation among the two nations. The machinery & transport equipment and medicinal and pharmaceutical products industries have recorded 0.59 and 0.64 (IIT) indices respectively. It implies that both the industries have weak intraindustry trade tendencies which realized that these goods may have differentiated by attributes should have horizontal IIT. The textile yam, fabrics, made-up articles, machinery specialized for particular industries and miscellaneous manufactured articles industries have a strong inter-industry trade tendencies. These industries may have more comparative advantages like cost of production, quality and specialization among these two SAARC countries. Besides, the manufactures of metals and articles of apparel and clothing accessories industries have strong intra-industry tendencies. There may be a vertical IIT where the goods are differentiated by quality. The electrical machinery, apparatus and appliances industries may be weaken inter-industry trade tendencies between the two countries. 149

28 SITC TABLE: 5.5 INTRA-INDUSTRY TRADE BETWEEN INDIA AND NEPAL Descriptions 5 Chemicals and 1990 TO Exports India Imports Nepal GL (NT) Vr related products (NT) 9 Commodities and Transactions not classified elsewhere in the SITC Metalliferous ores and metal scrap Inorganic Chemicals Special transaction and commodities not classified according to kind (5)

29 5.9. INTRA - INDUSTRY TRADE BETWEEN INDIA AND NEPAL India and Nepal are traditionally related countries where their cultural and political environment have more or less similarity in nature. There two countries have been maintaining good relation for the past so many years. As far as intra-industry trade is concerned, the chemicals and related products, commodities and transactions not classified elsewhere in the SITC, Inorganic chemicals and special transactions and commodities (not classified according to SITC) industries may have strong inter-industry trade tendencies. These industries have traditionally associated with comparative advantages of nations, may lead to more costly adjustments, as trade and specialization factors from contested export-oriented industries. India has more additional comparative advantage than the parallel country recorded IIT indices 0.17, 0.15, and Importing countries could also realize the cost benefit of exporting countries may take appropriate trade decision for further expansion of intra-trade. There may be a weak inter-industry trade in Inorganic industry recorded 0.42 (IIT) which implies that the goods are differentiated by attributes with horizontal IIT. 150

30 SITC TABLE: 5.6 INTRA-INDUSTRY TRADE BETWEEN INDIA AND SRILANKA Descriptions 5 Chemicals and Exports India 1990 TO 2005 Imports Sri Lanka GL (I IT) Vr related products Manufactured goods classified chiefly material 9 Commodities by and transactions not classified 28 Metalliferous 51 Organic (IIT) ores Chemicals Inorganic Chemicals Rubber manufactures Cork and wood manufactures Manufactures of metals (6)

31 5.10. INTRA - INDUSTRY TRADE BETWEEN INDIA AND SRI LANKA India and Sri Lanka have been playing a pivotal role in SAARC organization. The SAPTA & SAFTA multilateral agreements have been initiated and launched by these two nations share would not be neglected. Both the countries intra-industry trade have more or less similar in nature witnessed by IIT indices. The chemicals and related products, manufacture goods classified chiefly by material, commodities & transactions (not classified elsewhere in SITC), rubber manufactures, inorganic chemicals, cork & wood manufactures other than furniture s and manufactures of metal industries have strong inter-industry trade may have more comparative advantages in among the country. It is witnessed that the Sri Lanka has more comparative advantages of these industries. It implies that the industries have vertical IIT where goods are differentiated by quality. The metalliferous ores & metal scrap industry may have weak interindustry trade tendencies witnessed slight advantages of India. Except metalliferous ores & metal scrap industry, the Sri Lanka has strong interindustry trade tendencies could help Sri Lanka supply more qualitative products to SAARC nations. 151

32 SITC TABLE: 5.7 INTRA-INDUSTRY TRADE BETWEEN INDIA AND PAKISTAN Descriptions 5 Chemicals and 1990 TO 2005 Exports India Imports Pakistan GL (IIT) V r (IIT) related products Manufactured goods classified chiefly by material 51 Organic chemicals 52 Inorganic chemicals Rubber manufactures Special transactions and commodities not classified in SITC Special transactions and commodities not classified by SITC Special transactions (7)

33 5.11. INTRA - INDUSTRY TRADE BETWEEN INDIA AND PAKISTAN India and Pakistan are unique countries, performing mega role in SAARC organization. Both the countries are important determinant for the growth of intra & inter-industry trade among SAARC nations. It is well known that an ethnic factors may have to be negotiated could only source for SAARC healthiness. The chemicals & related products, India has more advantages inter-industry trade tendencies may have the goods are differentiated by quality with vertical IIT. Similarly manufactured goods classified chiefly by material industries, organic chemicals, inorganic chemicals, rubber manufactures & special transactions & commodities (not classified according to kind) industries have vertical IIT where goods are differentiated by quality. In this contest, intra-industry trade, India has traditionally associated with more comparative advantages with Pakistan. It is hypothesized that the SAARC countries indices value between may have strong interindustry trade tendencies. These strong inter-industry trades could happen only through quality and specialization factors called vertical inter-industry trade. In these regard, India may have more opportunities to improve SAARC intra-trade relation through bilateral negotiations. 152

34 SITC TABLE: 5.8 INTRA-INDUSTRY TRADE BETWEEN INDIA AND BANGLADESH Descriptions 5 Chemicals and 1990 TO 2005 Exports India Imports Bangladesh GL (IIT) Vr (IIT) related products Manufactured goods classified chiefly by material 9 Commodities and transactions classified elsewhere not 29 Crude animal and vegetable materials Organic chemicals 69 Manufactures of 93 Special metals transactions and commodities not classified according to kind (8)

35 5.12. INTRA - INDUSTRY TRADE BETWEEN INDIA AND BANGLESH India and Bangladesh are neighbouring countries that have recorded least intra & inter-industry trade. The chemicals & related products, manufacture goods classified chiefly by materials, commodities & transactions, crude animal & vegetable materials, organic chemicals, manufactures of metals & special transaction & commodities (not classified according to kind) industries have recorded strong inter-industry trade tendencies. They may have a vertical I IT where goods are differentiated by quality. Implies that India has more comparative advantages with Bangladesh. These intensities could happen probably by high quality advantages, least cost of production & technological up gradation witnesses strong inter-industry trade tendencies. The inorganic chemical industries may have weak inter-industry trade tendencies which implies that the industry may have horizontal IIT where goods are differentiated by attributes. 153

36 TABLE: 5.9 INTRA-INDUSTRY TRADE BETWEEN NEPAL AND SRILANKA 1990 TO 2005 SITC Descriptions 5 Chemicals and Exports Nepal Imports Sri Lanka GL (NT) Vr (NT) related products Oil seeds and Oleaginous fruits Textile yarn, Fabrics, made-up articles Articles of apparel and clothing accessories (9)

37 5.13. INTRA - INDUSTRY TRADE BETWEEN NEPAL AND SRI LANKA The intra-industry trade between Nepal and Sri Lanka was not impressive during the analysis period. The chemicals and related products, Textile Yarn, Fabrics, made-up articles, Articles of apparel and Clothing Accessories and miscellaneous manufactures articles industries have recorded strong interindustry trade tendencies and may have a vertical inter-industry trade. Nepal has strong inter-industry trade with Sri Lanka in chemicals, related products, and miscellaneous manufactured articles, which implies that these industries may have maintain quality based products than the Sri Lanka s inter-industrial products. Nepal has comparative advantages of nations may lead to more costly adjustments. As far as articles of apparel clothing accessories industries Sri Lanka has in upper hand may have more chances to intensify the trade with SAARC countries. The Oil seeds and Oleaginous fruits industries have weaker intraindustry trade tendencies. The industries goods may have in similar nature may not have any cost adjustments. 154

38 TABLE: 5.10 INTRA-INDUSTRY TRADE BETWEEN NEPAL AND PAKISTAN 1990 TO 2005 SITC Descriptions Exports Imports GL Vr Nepal Pakistan (NT) (I IT) 5 Chemicals and related products (10)

39 5.14. INTRA - INDUSTRY TRADE BETWEEN NEPAL AND PAKISTAN Transportation may be a costly affair and it is a more important determinant in foreign trade. Unless, particular country should have more comparative advantages in inter and intra-industry trade among any other nations, that the trade may reconsider for further trade operations. Nepal and Pakistan intra-industry trade has witnessed for SAARC nations effectiveness of intra-industry trade recorded a single industry of Chemicals and related products. In this industry has strong inter-industry trade tendencies. Nepal has more comparative cost advantages in this industry recorded 0.18 IIT indices where goods are differentiated by quality. This is an effective indication shows the requirement for improvement of intra and inter-industry trade among SAARC nations. 155

40 TABLE: 5.11 INTRA-INDUSTRY TRADE BETWEEN NEPAL AND BANGLADESH AND SITC Descriptions 7 Machinery and 1990 TO Exports Nepal Imports Bangladesh GL (IIT) Vr (IIT) transport equipment Medicinal and pharmaceutical Textile yarn, fabrics, made-up articles Manufactures of metals Machinery specialized for particular industries 77 Electrical machinery, apparatus and appliances 84 Articles of apparel and clothing accessories 89 Miscellaneous manufactured articles (11)

41 5.15. INTRA - INDUSTRY TRADE BETWEEN NEPAL AND BANGLADESH Nepal and Bangladesh are both the countries homogeneous in Political, Economic and Social characters and similar in nature. Many more theoretical literatures have emerged to find out intra-industry trade relations. The textile yarn, Fabrics, made-up articles, Machinery specialized for particular industries and miscellaneous manufactured articles industries have recorded strong inter-industry trade tendencies. Bangladesh has more strong inter-industry intensity with Nepal. It is realized that these industries have traditionally vertical I IT where goods are differentiated by quality. Bangladesh may have more comparative production and trade advantages in these industries could create better bilateral trade on these industries. The machinery and transport equipment and medicinal and pharmaceutical products industries have weak in intra-industry trade (IIT) recorded.59 and.64 respectively. The goods may have differentiated by attributes could be reason behind for weak intra-industry trade among the nations. The manufactures of Metals and articles of apparel and clothing accessories industries have strong intra-industry tendencies where goods are differentiae by quality. Nepal has more cost advantages in these industries and gets comparative advantages of nation with Bangladesh. Electrical machinery, Apparatus and Appliances industries have a weak inter-industry trade tendencies where the goods are differentiated with attributes. 156

42 SITC TABLE: 5.12 INTRA-INDUSTRY TRADE BETWEEN NEPAL AND INDIA Descriptions 5 Chemicals and 1990 TO 2005 Exports Nepal Imports India GL (I IT) Vr (\\T) related products Commodities and transactions not classified in SITC Metalliferous ores and metal scrap Inorganic chemicals Special transactions and commodities not classified in SITC (12)

43 5.16. INTRA - INDUSTRY TRADE BETWEEN NEPAL AND INDIA Nepal and India are traditionally very close trade related countries, not only in geographically but politically and economically healthy relations have been developing between the two nations have established a strong background and support with each other. The chemicals and related products, commodities and transactions (not classified elsewhere in the SITC), Inorganic chemicals and special transation and commodities (not classified according to kind) industries have a strong inter-industry trade tendencies where the goods are differentiated by quality. The Chemicals and related products, commodities and transactions and Inorganic Chemicals industries, India has more comparative advantages than Nepal. The Special transactions and commodities industries, Nepal has more comparative cost and quality advantage than India. The Metalliferous Ores and Metal Scrap industries have weak inter-industry trade tendencies where the goods are differentiated with attributes. *. 157

44 SITC TABLE; 5.13 INTRA-INDUSTRY TRADE BETWEEN PAKISTAN AND INDIA Descriptions Exports Pakistan 1990 TO 2005 Imports India GL (I IT) Vr (IIT) 5 Chemicals and related products 6 Manufactured goods Organic chemicals 52 Inorganic chemicals 62 Rubber manufactures 93 Special transactions 931 Special transactions and commodities not classified 9310 Special transactions not classified (13)