INTRA-INDUSTRY TRADE BETWEEN INDIA AND INDONESIA
Keywords:
Intra-Industry Trade, Grbel-Lioyd Index, ARDL Cointegration
Abstract
This paper analyzes the determinants of India’s Intra-Industry Trade (IIT) with its
trading partner, Indonesia, from 1995 to 2017. We estimate India’s IIT with Indonesia
using bilateral commodity trade data at the two-digit Broad Economic Categories
classification code level. Our estimates of IIT demonstrate that India’s trade with
Indonesia is indeed intra-industry in nature. However, no remarkable improvements
in the intensity of IIT is found. We also examine the determinants of IIT by estimating
a standard IIT equation using an autoregressive distributed lag model. Our empirical
findings reveal that trade imbalances, disparity in the demand structure, and the
human capital endowments among the countries reduce bilateral IIT and that foreign
direct investment and trade openness play an important role in enhancing it. This study
therefore suggests relevant policy interventions to facilitate fair trade by reducing
barriers.
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References
Aggarwal, S., and Chakraborty, D. (2017). Determinants of India’s Bilateral Intra-
Industry Trade Over 2001–2015: Empirical Results. South Asia Economic
Journal, 18, 296–313.
Andresen, M. A. (2003). Empirical Intra-Industry Trade: What We Know and
What We Need to Know, Figure 3. IIT Index (Bilateral IIT between India and
Indonesia)
Balassa, B. (1986). Intra-Industry Specialization a Cross-Country Analysis. European
Economic Review, 30, 27–34.
Balassa, B., and Bauwens, L. (1987). Intra-Industry Specialization in a Multi-
County and Multi-Industry Framework. Economic Journal, 97, 923–939.
Baldwin, R.E. (1979). Determinants of Trade and Foreign Investment: Further
Evidence. Review of Economics and Statistics, 61, 40–48.
Bergstrand, R.E. (1983). Measurement and Determinants of Intra-Industry International
Trade. In Tharakan P.K.M. (Ed.) Intra-Industry Trade: Empirical And
Methodological Aspect. Amsterdam, 201-262.
Brülhart, M. (1994). Marginal Intra-Industry Trade: Measurement and Relevance for
the Pattern of Industrial Adjustment. Review of World Economics, 130, 600–613.
Burange, L. G., and Chaddha, S. J. (2008). Growth in India’s Intra-Industry Trade.
Working Paper UDE 24/2/2008, Mumbai: Department of Economics, University
of Mumbai.
Caves, R.E. (1981). Intra-Industry Trade and Market Structure in the Industrial
Countries. Oxford Economic Papers, 33, 203–223.
Chen, T. Y. (2000). Foreign Direct Investment and Intra-Industry Trade: The Case
of the United States. Pacific Economic Papers, 302.
Clark, P.D., and Denise, L. (1999). Determinants of Intra-Industry Trade between
Developing Countries and the United State. Journal of Economic Development,
24, 79-95.
Cortinhas, C. (2007). Intra-Industry Trade and Business Cycles in ASEAN. Applied
Economics, 39, 893–902.
Davis, D.R. (1995). Intra-Industry Trade: A Heckscher-Ohlin-Ricardo Approach.
Journal of International Economics, 39, 3-4.
Fainštein, G., and Netšunajev, A. (2011). Intra-Industry Trade and Development in
the Baltic States. Emerging Markets Finance and Trade, 47, 95-110.
Falvey, R. (1981). Commercial Policy and Intra-Industry Trade. Journal of
International Economics, 11, 495−511.
Falvey, R., and Kierzkowski, H. (1986). Product Quality, Intra-Industry Trade and
Imperfect Competition. In H. Kierzkowski (Ed.) Protection and Competition in
International Trade. Oxford, Blackwell.
Greenaway, D., Hine, R.C., and Milner, C. (1994). Country-Specific Factors and
Pattern of Horizontal and Vertical Intra-Industry Trade in the UK. Review of
World Economics, 130, 77-100.
Grubel, H., and Lloyd, P. (1975). Intra-Industry Trade: The Theory and Measurement of
International Trade in Differentiated Products. Macmillan, London.
Gullstrand, J. (2002). Does the Measurement of Intra-Industry Trade Matter?
Review of World Economics,138, 317-339.
Haddad, M. (2007). Trade Integration in East Asia: The Role of China and Production
Networks. Policy Research Working Paper; No. 4160. World Bank, Washington,
DC.
Harrigan, J. (1994). Scale Economies and the Volume of Trade. The Review of
Economics and Statistics, 76, 321–328.
Harrigan, J. (1996). Technology, Factor Supplies and International Specialization:
Estimating the Neoclassical Model. NBER Working Papers, No. 5722, National
Bureau of Economic Research, Cambridge.
Helpman, E., and Krugman, P. (1985). Market Structure and Foreign Trade: Increasing
Returns, Imperfect Competition and the International Economy. MIT Press,
Cambridge.
IMF. (2011). Changing Patterns of Global Trade, Prepared by the Strategy, Policy, and
Review Department. International Monetary Fund, Washington.
Krugman, P.R. (1981). Intra-Industry Specialization and the Gains from trade.
Journal of Political Economy, 89, 959–973.
Leamer, E. (1988). Measure of Openness. In Baldwin, R.E. (Ed.), Trade Policy Issues
and Empirical Analysis. University of Chicago Press, Chicago.
Linder, S. (1961). An Essay on Trade and Transformation. John Wiley and Sons, New
York.
Loertscher, R., and Wolter, F. (1980). Determinants of Intra-Industry Trade: Among
Countries and Across Industries. Review of World Economics, 116, 289-293.
Markusen, J. (1983). Factor Movements and Commodity Trade AS Complements.
Journal of International Economics, 13, 341–56.
Markusen, J., and Venables. A.J. (1998). Multinational Firms and the New Trade
Theory. Journal of International Economics, 46, 183-203.
Markusen, J., and Vernables, A.J. (2000). The Theory of Endowment, Intra-Industry
Trade and Multinational Trade. Journal of International Economics, 52, 209–234.
Maric, Z. (2011). Intra-Industry Trade and Economic Development (Case of Bosnia
and Herzegovina). Journal of Economic and Politics of Transition, 27, 1-11
Menon, J. (1996). The Dynamics of Intra‐Industry Trade in ASEAN. Asian Economic
Journal, 10, 105-115.
Ministry of Commerce. (2016). Report on India-Indonesia Relations, Government
of India.
Narayan, P.K. (2005). The Saving and Investment Nexus for China: Evidence from
Cointegration Tests. Applied Economics, 37, 1979–1990
OECD. (2018). International Trade and Balance of Payments Statistics. The
Organization of Economic Co-Operation and Development. France.
Pesaran, M.H., and Shin, Y. (1999). Testing for the Existence of a Long-Run Relationship.
DAE Working Paper 9622, Department of Applied Economics, University of
Cambridge.
Pesaran, M.H., Shin.Y., and Smith, R.J. (2001). Bounds Testing Approaches to the
Analysis of Long-Run Relationships. Journal of Applied Econometrics,16, 289–
326.
Sawyer, W. C., and Richard, S., and Kiril, T. (2010). Patterns and Determinants of
Intra-Industry Trade in Asia. Journal of Asian Economics, 21, 485-493.
Sohn, C.H., and Zhang, Z. (2005). How Intra-Industry Trade is Related to Income
Difference and Foreign Direct Investment in East Asia. Asian Economic Papers,
4, 143–156.
Thorpe, M., and Shang, Z. (2005). Study of the Measurement and Determinants of
Intra-Industry Trade in East Asia. Asian Economic Journal, 19, 231–247.
Varma, P. (2015). An Analysis of Country Specific Determinants of Vertical and
Horizontal Intra-Industry Trade in the Food Processing Sector of India.
International Journal Trade and Global Markets, 8, 324–342.
Veeramani, C. (2002). Intra-Industry Trade of India: Trends and Country-Specific
Factors. Review of World Economics, 138, 509–533.
Veeramani, C. (2007). Industry-Specific Determinants of Intra-Industry Trade in
India. Indian Economic Review, 42, 211–219.
Wakasugi, R. (2007). Vertical Intra-Industry Trade and Economic Integration in
East Asia. Asian Economic Papers, 6, 26-39.
Xing, Y. (2007). Foreign Direct Investment and China’s Bilateral Intra-Industry
Trade with Japan and the US. Journal of Asian Economics, 18, 685-700.
Zhang, Z., and Li,C. (2006). Country-Specific Factors and the Pattern of Intra-
Industry Trade in China’s Manufacturing. Journal of International Development,
18, 1137-1149.
Industry Trade Over 2001–2015: Empirical Results. South Asia Economic
Journal, 18, 296–313.
Andresen, M. A. (2003). Empirical Intra-Industry Trade: What We Know and
What We Need to Know, Figure 3. IIT Index (Bilateral IIT between India and
Indonesia)
Balassa, B. (1986). Intra-Industry Specialization a Cross-Country Analysis. European
Economic Review, 30, 27–34.
Balassa, B., and Bauwens, L. (1987). Intra-Industry Specialization in a Multi-
County and Multi-Industry Framework. Economic Journal, 97, 923–939.
Baldwin, R.E. (1979). Determinants of Trade and Foreign Investment: Further
Evidence. Review of Economics and Statistics, 61, 40–48.
Bergstrand, R.E. (1983). Measurement and Determinants of Intra-Industry International
Trade. In Tharakan P.K.M. (Ed.) Intra-Industry Trade: Empirical And
Methodological Aspect. Amsterdam, 201-262.
Brülhart, M. (1994). Marginal Intra-Industry Trade: Measurement and Relevance for
the Pattern of Industrial Adjustment. Review of World Economics, 130, 600–613.
Burange, L. G., and Chaddha, S. J. (2008). Growth in India’s Intra-Industry Trade.
Working Paper UDE 24/2/2008, Mumbai: Department of Economics, University
of Mumbai.
Caves, R.E. (1981). Intra-Industry Trade and Market Structure in the Industrial
Countries. Oxford Economic Papers, 33, 203–223.
Chen, T. Y. (2000). Foreign Direct Investment and Intra-Industry Trade: The Case
of the United States. Pacific Economic Papers, 302.
Clark, P.D., and Denise, L. (1999). Determinants of Intra-Industry Trade between
Developing Countries and the United State. Journal of Economic Development,
24, 79-95.
Cortinhas, C. (2007). Intra-Industry Trade and Business Cycles in ASEAN. Applied
Economics, 39, 893–902.
Davis, D.R. (1995). Intra-Industry Trade: A Heckscher-Ohlin-Ricardo Approach.
Journal of International Economics, 39, 3-4.
Fainštein, G., and Netšunajev, A. (2011). Intra-Industry Trade and Development in
the Baltic States. Emerging Markets Finance and Trade, 47, 95-110.
Falvey, R. (1981). Commercial Policy and Intra-Industry Trade. Journal of
International Economics, 11, 495−511.
Falvey, R., and Kierzkowski, H. (1986). Product Quality, Intra-Industry Trade and
Imperfect Competition. In H. Kierzkowski (Ed.) Protection and Competition in
International Trade. Oxford, Blackwell.
Greenaway, D., Hine, R.C., and Milner, C. (1994). Country-Specific Factors and
Pattern of Horizontal and Vertical Intra-Industry Trade in the UK. Review of
World Economics, 130, 77-100.
Grubel, H., and Lloyd, P. (1975). Intra-Industry Trade: The Theory and Measurement of
International Trade in Differentiated Products. Macmillan, London.
Gullstrand, J. (2002). Does the Measurement of Intra-Industry Trade Matter?
Review of World Economics,138, 317-339.
Haddad, M. (2007). Trade Integration in East Asia: The Role of China and Production
Networks. Policy Research Working Paper; No. 4160. World Bank, Washington,
DC.
Harrigan, J. (1994). Scale Economies and the Volume of Trade. The Review of
Economics and Statistics, 76, 321–328.
Harrigan, J. (1996). Technology, Factor Supplies and International Specialization:
Estimating the Neoclassical Model. NBER Working Papers, No. 5722, National
Bureau of Economic Research, Cambridge.
Helpman, E., and Krugman, P. (1985). Market Structure and Foreign Trade: Increasing
Returns, Imperfect Competition and the International Economy. MIT Press,
Cambridge.
IMF. (2011). Changing Patterns of Global Trade, Prepared by the Strategy, Policy, and
Review Department. International Monetary Fund, Washington.
Krugman, P.R. (1981). Intra-Industry Specialization and the Gains from trade.
Journal of Political Economy, 89, 959–973.
Leamer, E. (1988). Measure of Openness. In Baldwin, R.E. (Ed.), Trade Policy Issues
and Empirical Analysis. University of Chicago Press, Chicago.
Linder, S. (1961). An Essay on Trade and Transformation. John Wiley and Sons, New
York.
Loertscher, R., and Wolter, F. (1980). Determinants of Intra-Industry Trade: Among
Countries and Across Industries. Review of World Economics, 116, 289-293.
Markusen, J. (1983). Factor Movements and Commodity Trade AS Complements.
Journal of International Economics, 13, 341–56.
Markusen, J., and Venables. A.J. (1998). Multinational Firms and the New Trade
Theory. Journal of International Economics, 46, 183-203.
Markusen, J., and Vernables, A.J. (2000). The Theory of Endowment, Intra-Industry
Trade and Multinational Trade. Journal of International Economics, 52, 209–234.
Maric, Z. (2011). Intra-Industry Trade and Economic Development (Case of Bosnia
and Herzegovina). Journal of Economic and Politics of Transition, 27, 1-11
Menon, J. (1996). The Dynamics of Intra‐Industry Trade in ASEAN. Asian Economic
Journal, 10, 105-115.
Ministry of Commerce. (2016). Report on India-Indonesia Relations, Government
of India.
Narayan, P.K. (2005). The Saving and Investment Nexus for China: Evidence from
Cointegration Tests. Applied Economics, 37, 1979–1990
OECD. (2018). International Trade and Balance of Payments Statistics. The
Organization of Economic Co-Operation and Development. France.
Pesaran, M.H., and Shin, Y. (1999). Testing for the Existence of a Long-Run Relationship.
DAE Working Paper 9622, Department of Applied Economics, University of
Cambridge.
Pesaran, M.H., Shin.Y., and Smith, R.J. (2001). Bounds Testing Approaches to the
Analysis of Long-Run Relationships. Journal of Applied Econometrics,16, 289–
326.
Sawyer, W. C., and Richard, S., and Kiril, T. (2010). Patterns and Determinants of
Intra-Industry Trade in Asia. Journal of Asian Economics, 21, 485-493.
Sohn, C.H., and Zhang, Z. (2005). How Intra-Industry Trade is Related to Income
Difference and Foreign Direct Investment in East Asia. Asian Economic Papers,
4, 143–156.
Thorpe, M., and Shang, Z. (2005). Study of the Measurement and Determinants of
Intra-Industry Trade in East Asia. Asian Economic Journal, 19, 231–247.
Varma, P. (2015). An Analysis of Country Specific Determinants of Vertical and
Horizontal Intra-Industry Trade in the Food Processing Sector of India.
International Journal Trade and Global Markets, 8, 324–342.
Veeramani, C. (2002). Intra-Industry Trade of India: Trends and Country-Specific
Factors. Review of World Economics, 138, 509–533.
Veeramani, C. (2007). Industry-Specific Determinants of Intra-Industry Trade in
India. Indian Economic Review, 42, 211–219.
Wakasugi, R. (2007). Vertical Intra-Industry Trade and Economic Integration in
East Asia. Asian Economic Papers, 6, 26-39.
Xing, Y. (2007). Foreign Direct Investment and China’s Bilateral Intra-Industry
Trade with Japan and the US. Journal of Asian Economics, 18, 685-700.
Zhang, Z., and Li,C. (2006). Country-Specific Factors and the Pattern of Intra-
Industry Trade in China’s Manufacturing. Journal of International Development,
18, 1137-1149.
Published
2019-02-27
How to Cite
VIDYA, C. T., & Prabheesh, K. (2019). INTRA-INDUSTRY TRADE BETWEEN INDIA AND INDONESIA. Buletin Ekonomi Moneter Dan Perbankan, 21, 511-530. https://doi.org/10.21098/bemp.v0i0.978
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Articles
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