Intra Industry Trade In India

India's

Intra Industry Trade

CONTENTS

Acknowledgements 2

Introduction 4

Theoretical Framework 5

Methodology 6

Analysis 8

Sensitivity Analysis 12

Industry Analysis 14

Sugar industry 14

Diamond industry 18

Man made staple fibres 22

Preserved food industry 29

Carbon industry 36

Conclusion 41

Introduction

The project of Intra Industry trade of India from 1990-2000 is an attempt to understand the India's trade with world and changes taking place in the nature of trade in various commodities. To achieve this process of understanding we followed a methodology, which is being described subsequently. Working on the lines of that methodology analysis has been done of the extracted data relevant to our objective. Thereafter analysis is done by evaluating Grubel Lloyd Index, commodities in Vertical and horizontal Category and evaluating their respective indices.

This is being followed by choosing 5 industries based on the factors viz. Technology, Labour, Role of Government and Role of Domestic Consumers which cover the broadest of the economic framework and can be utilized for further prediction. We have chosen following sectors and analysis done in these try to answer associated questions qualititaively:

 Diamond: How the Labour abundance and skill shaped the magnitude and nature of Trade in diamond Sector?

 Sugar: How much can Government affect the direction and strength of trade and role of technological upgradation & skillset shapes the trade parameters?

 Preserved Food: How changing taste and preferences of consumer affects the trade?

 Man Made Staple and Fibre: What is the affect of Labour laws and unskilled labour on trade and How the latent advantages remain hidden if Policy makers are late?

 Carbon: Once again a classic case of going from Horizontal to Vertical in an undesirable way. Here duties' structure come into picture.

These questions will be attempted to be answered which can help us in structuring policies considering the increasing amount of Intra Industry trade in overall Trade.

We end up with concluding about the overall picture of emerging Intra Industry Trade based upon the past and crucial factors for Trade.

Theoretical Framework

It is generally held that the Ricardian and the H-O-S models cannot provide a proper understanding of Intra-Industry Trade. This called for new theoretical formulations. While the earlier attempts were aimed at explaining horizontal IIT analytical interest on vertical IIT is rather recent.

Horizontal IIT is the exchange of commodities differentiated by attributes excluding quality. Horizontal IIT is explained by economies of scale in the presence of product differentiation and imperfect competition. Vertical IIT is the exchange of commodities differentiated by quality. The explanations for vertical IIT were sought without recourse to economies of scale by Falvey (1981), Falvey and Kierzkowski (1987), and Falm and Helpman (1987). Economies of scale is a critical element of the model of vertical IIT developed by Shaked and Sutton (1984). In general, these models predict the pattern of IIT along the lines similar to the pattern of inter-industry trade predicted in the standard trade model, according the central role to factor endowment differences.

The models of horizontal IIT are considered to be of greater relevance to trade among the developed countries. The models of vertical IIT, on the other hand, are considered to be particularly relevant to trade among unequal partners.

In VIIT, there exists trade within a single industry, which is assumed to possess a stock of industry specific capital and produces a continuum of products differentiated by quality. Higher quality products are characterized by higher capital labor ratio used in their production. The comparative advantages of capital abundant countries, therefore, lie on the higher ends of the quality spectrum and that of labor abundant countries lie on the lower ends. Vertical IIT between two countries will arise given an overlap in the demand for different qualities and this possibility is enhanced the greater is the difference in factor endowments between the countries.

There are a number of testable hypotheses relating country specific factors and IIT. Such country specific factors include cross-country differences in per capita income, income distribution, market size, human capital endowment and technology.

Methodology

The methodology which we followed for this project is given below:-

1>Data Extraction -In India, the comprehensive data on foreign trade are officially collected and published by the Directorate General of Commercial Intelligence and Statistics (DGCI&S). A new commodity classification system, known as the Harmonized System has been adopted by DGCI&S from April 1987. This data from 1988 onwards is available in a computer database (India Trades) supplied by the Centre for Monitoring Indian Economy (CMIE). The present study uses this data source and the products grouped under the 4-digit level of the Indian Trade classification (ITC) are considered an industry. We extracted the export import data for the years 1991-2000 for 1127 commodities .For each commodity the data is extracted under the heads of Commodity Name , Unit , Source, and then quantity ,unit value and Value for each year.

2>Data refining -Some of the data was to be removed due to various reasons like

- Uncommon in exports and imports.

- Products not having their quantity mentioned.

We removed all those products and finally we had 937 products.

3>Segregation - We segregated