The Measurement of Intra-Industry Trade between Unequal Partners

Weltwirtschaftliches Archiv 02/1997; 133(3):554-565. DOI: 10.1007/BF02707503
Source: RePEc


This note argues that the inadequacy of the GL index to correctly reflect the level of intra-industry trade in presence of trade imbalances may partly be due to measuring intra-industry trade between countries with large differences in economic size. Several adjustment procedures have been suggested in the literature but it is demonstrated that none of the alternative measures seem capable of eliminating the problem. A new measure of intra-industry trade is proposed in which the bilateral level of intra-industry trade is divided by the total number of products traded between two countries to yield an average level of intra-industry trade per product. This measure may also be applied at industry level, and in contrast to the GL index, it is highly correlated with the actual level of intra-industry trade.
In studies of intra-industry trade, one should cautiously interpret the GL index since it may give a false picture of the extent and the volume of intra-industry trade. If the standard GL index is used, it is suggested that also alternative measures of intra-industry trade are employed to complement the GL index in order to correctly observe the true extent of intra-industry trade.

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Available from: Lars Nilsson
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    • "Furthermore, we have no theoretical a priori indication as to which measure is best. Finally, Rajan (1996) and Nilsson (1997 and 1999) argue that, in general, the degree of intraindustry trade, as measured by the GL index, is a poor indicator of the level of intra-industry trade. This also appears to be the case with the indices and shares reported in Table 1. "
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    ABSTRACT: Intra-industry trade in agri-food products between Hungary and the EU is shown to be low and dominated by vertically rather than horizontally differentiated products, suggesting higher economic adjustment costs. Following recent empirical studies, we then test econometrically for the determinants of this trade using different measures of horizontal and vertical trade, and employing an array of popular explanatory variables. Results suggest that separating the measure of intra-industry trade into vertical and horizontal provides for better estimation and supports the contention that the determinants may differ by type of trade. In the regression analysis, the level of intra-industry trade is found to serve as a better dependent variable than the degree or share of intra-industry trade.
    Full-text · Article · Feb 2002 · SSRN Electronic Journal
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    • "In an example of Germany ' s intra - industry trade with 20 developing countries in 1990 , Nilsson ( 1997 ) shows that the correlation coefficient between the proposed measure in ( 8 ) and the level of intra - industry trade is high ( 0 . 96 ) , revealing that intra - industry trade per product is a suit - able proxy for the level of intra - industry trade . "
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    ABSTRACT: Two-Way Trade between Unequal Partners: The EU and the Developing Countries. — This paper analyses the intra-industry trade specialization between the EU and the developing countries between 1980 and 1992. It shows that EU intra-industry trade with the developing countries has greatly increased and that the traditional measure of intra-industry trade, the Grubel-Lloyd index, is inappropriate when applied to trade between developed and developing countries. By and large, the empirical analysis confirms that intra-industry trade between the developed and the developing countries increases with average and per capita income, and with reduced differences in economic size and capital-labour ratios.
    Full-text · Article · Feb 1999 · Weltwirtschaftliches Archiv
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    ABSTRACT: In view of the ongoing process of globalization and increasing economic integra-tion, as well as imperfect competition and dynamic technological development, the issue of similarities in economic structures becomes crucial factor determining trade intensity among countries. Based on the new trade theory and regarding fundamental economic changes which took place in Central and East European countries during the 90s, the paper deals with Croatian intra-industry trade in comparison to other transition countries. The analysis shows that unlike new member countries of the EU, the smaller part of Croatian trade is of intra-industry type, i.e. there still dominates specialization according to tradi-tional factor proportions theory. With such specialization pattern and a signifi cant share of commodities of low level of technical sophistication it is diffi cult to expect signifi cant positive effects of Croatian trade integration both on the world market and within regional economic integration in short-to-medium run.
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