Intra-industry trade

Intraindustry trade (English: intra- industry trade, IIT ) is a term in economics and describes a specific form of foreign trade or international trade. He referred to the cooperation of several economies, trade the same kind of goods or services to each other. By trading on the domestic markets, there is a greater variety of products without the companies need to expand their self-produced range further.

Definition

The term defines the international exchange of goods the same, that is, the exchange of goods of the same production sector of services and of production parts (eg computer chips). Industrial products in the same category of goods are exported by both trading partners and imported.

Intraindustry trade was first described in 1960 by Pieter Verdoorn and 1966 by Bela Belassa. Intraindustry trading is also known as substitutive, preference- oriented, intra- sectoral or intra-industry trade. "Industrial " designation refers to the sector in which the trade is operated with the same goods or services. Empirically, the phenomenon of intra-industry trade has been listed as a group of European countries formed the European internal market. This market is now grown in the European Union and consists of 27 member states. Intraindustry trade is based on observations that have been previously justified theoretically by economists Herbert G. Grubel and Peter J. Lloyd and were documented in 1975 by them. Prior to the publication of this theoretical approach, the macro-economic trade theory based on the assumption that countries only different goods or exchange either export the same goods in a country or import from one country together. The shape of the intra-industry trade could not be explained by the previously existing models of comparative advantage.

Delineation of intra-and inter- industry trade

Intraindustry trade prevails, for example, when Germany imported French cars and German cars exported to France. The goods are the same because they have the same function, have been prepared using the same technologies and belonging to the same group of industrial goods, but they are not identical. These same but not identical goods are referred to as imperfect substitutes. Thus, the goods are economically not directly interchangeable. Consumers can ask different variants of similar products in the same industry, but they can not ask identical products in the same industry. Interindustry trade is the counterpart of the intra-industry trade. In the inter-industrial trade goods of different production sectors between countries to be replaced. For example, Germany exports cars to China and imported Chinese computer.

Reasons for intra-industry trade

According to Adam Smith 's foreign trade is an enormous market magnification. The intra-industry trade is such a larger market for certain goods dar. By increasing additional goods can be sold and then additional gains from trade are generated. From the larger production quantity of a good lower average costs for such an item to follow. The lower average costs in turn cause these goods can be produced with a lower factor input as two separate smaller markets. Economies can reduce their own production of certain goods, while increasing their range of products in the domestic market or hold constant when they operate intra-industry trade. This in turn leads to an increase in productivity. The product range has the advantage of greater range of different products on the market for consumers. The wide range of products increase the competition for the company, since the consumer decides which product he buys. Growing competition in practice this is usually at lower prices for the product.

Molding

Horizontal trading

Horizontal intra-industry trade refers to the exchange of identical goods the same industry in different variants. The variation is, for example, in the price category, or in the function of the product. The product belongs to a similar group of industrial goods and thus has a similar but not identical function. The horizontal intra- industry trade products are in the same processing step of production. So Germany exported the fully assembled car to France and imported the fully assembled French car. This gives the consumer creates a wide variety of products and determines the demand for its preferences.

Vertical trade

Vertical intra-industry trade refers to the exchange of identical goods the same industry that are located in different processing steps. This form of trading implies the possibility that the production process can take place in several stages. The individual processing steps need to be done theoretically spatially separated. So the producers are able to take advantage of the benefits of local conditions such as favorable factor endowments ( labor) production or specialized factor endowments of research and development. For example, China imported technology-intensive auto parts for final assembly. But China uses its abundant labor force for the labor-intensive final assembly of the cars before they are re- exported (as part of the assembled cars) to Germany.

Gauge

The Grubel -Lloyd index ( ) is a relatively simple measuring instrument of intraindustiellen trade of a country. The index () stands for a similar product and is defined as:

Operates a national economy as much as export import within an industry with another economy, so is the result of Equation 1 (). It exists in the market for this product only in intra-industry trade. The extreme of the index reflects the result of the equation by 1. Operates a country by another country exclusively import or export, as the result of the equation equal to 0 (). In this market, no intra-industry trade takes place.

The size of the Grubel -Lloyd index is determined by the expansion of the industry term for which the intra-industry trade is to be measured. In practice, the trade according to the International Commodity Classification for Foreign Trade (English: Standard International Trade Classification ) is divided into ten sectors. This first division is also known as 1- digit- level ( single-digit level ) respectively. A second division then takes place in the various sectors of the first level. This second partition may be located lower in the so-called three - digit level and so on. For example, machinery and vehicles the seventh sector of the first partition. A second subdivision consists in this sector in General Industrial machinery and equipment (sector 74) or in road vehicles (sector 78). This sector 78 can be further divided into passenger cars (sector 781), trucks (sector 782 ) and so on.

The International Trade Centre (English: International Trade Center ) in Switzerland is a composite of the World Trade Organization and the United Nations. To divide the sectors in the factor intensity which must be applied for the manufacture of the product:

• Resource - intensive ( oil, minerals, grain, etc. )
• Natural resource intensive (wood, copper, cast iron, etc.)
• High intensity of unskilled labor
• High intensity of skilled labor
• Technology- intensive.

For example, China could focus on the labor-intensive final assembly of cars and import the needed car parts from Germany. Here, Germany focused on the production of technology-intensive factors. The relevant countries are able to produce the goods in large quantities. Countries can benefit from the advantages of mass production. The countries import the goods that they do not produce themselves, in order for these goods to serve the consumers in the domestic market. There are several variants of the products in a country in addition to the products manufactured by the country itself.

Conditions

Due to intra-industry trade can be offered in the domestic market increased product variety. The available range of products can satisfy special needs of the consumers. The special gratification increases the benefits of the product for the consumer. This results in an increase of social welfare result.

Intraindustry trade can be carried out if

• Economies of scale and
• Product variation important decision criteria for the trading and accounting,
• The production supply and production conditions in both countries are identical (low inter- industry trade ),
• The (production) demand conditions in the two countries are identical.

Under these conditions, the effect or the effect of the distribution of income is low and the country can generate significant additional profits through intra-industry trade.

The relative importance of intra- industry trade depends on the degree of similarity of the economic trading countries. Are these countries similarly equipped with capital and labor so dominated the intra-industry trade. If the factor endowments widely otherwise, economies to specialize in capital-intensive products with a relatively large amount of capital. Countries with relatively many skilled and / or unskilled workers can specialize in labor-intensive products. Krugman refers to the shape of the vertical intra-industry trade as a " pseudo- intra- industry trade". Hero Takes on the basis of Ricardo the view that the world's free trade (economic theory of free trade ) is the prerequisite for the functioning of this theory. The model banished the influence of institutional framework by assuming that all countries are similarly equipped with capital and labor. The framework is influenced by certain political, economic and social developments. You are responsible for certain forms of learning in an economy, so that may arise, for example, different innovation potentials of individual industries. Regulations of the State can inhibit certain development potentials and thus dampen price competition and innovation in a country.

Development

The commercial concept of intra-industry trade since the 20th century plays an essential role in economies. Since this form of trading in 1975 was measured relatively easily by the Grubel -Lloyd index, the values ​​could be compared. So could a significant increase of intra-industry trade in total world trade are detected. A large part of intra-industry trade plays off between the industrialized countries. This industrial nations are similar in terms of technology and resources (capital, skilled workers, etc.).

The share of intra-industry trade, as measured by the Grubel -Lloyd index is more than 80 % of the total industrial goods trade (equivalent to about 50 % of world trade in the early 20th century ). The values ​​may vary, depending on the interpretation of the concept of industry ( and according to the selected Disaggregationsstufe for analysis). So speak other authors from 50% to 75 % share in the world trade. The importance of intra- industry trade increased during the late 80s significantly in the majority of Member States of the European Union, which also belong to the OECD. Thus, the OECD published in 2002, an increase of intra-industry trade in Germany by 5% within 5 years to a total of 72%.

If you break the intra-industry trade on, in 2005 there were 18.7 % of German exports within the EU from motor vehicles and motor vehicle parts. Motor vehicles and parts accounted for 13.9 % of German imports from the EU. Chemical products accounted for 13.0 % of the German EU exports and 13.4 % of the German EU imports. Machines have been exported to 11.0% in the EU and imported to 6.7% by the EU.

Associated with economies of scale

Intraindustry trade based on the existence of economies of scale in production. Increasing economies of scale lead to cost advantages, as the production volume more than doubled with doubling of factor inputs, so that decreases due to the increasing production volume of the average factor input.

For example, Germany is theoretically capable of producing french cars because it has the same technological conditions and opportunities as a French producer. For the production of this car Germany would have to bear substantial costs of investing in the early years in purchase to build new production capacities. The economies of scale in the French auto start so at a very low level, while the economies of scale are reached with the German car after many years of production already at a high level. Due to the additional production of the French car by the German manufacturer returns to scale would fall at the beginning and only to rise again with continuous production. Decreasing returns to scale are in the economic theory, the reason that Germany produces only a limited number of product variants themselves.