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Country-Specific Determinants of Intra-Industry Trade in India

Author

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  • Sagnik Bagchi
  • Surajit Bhattacharyya

Abstract

A distinctive feature of India’s trade liberalization has been a significant rise in the magnitude of intra -industry trade (IIT). India’s total IIT is substantially large with high and upper-middle -income group countries and dominated by low vertical IIT. Particularly during the second phase of economic reforms, magnitude of India’s vertical IIT with high-income group of countries had increased ; while there had been a marginal decline in horizontal IIT. This article identifies some of the determinants of India’s total IIT as well as vertical and horizontal IIT with her major trading partners from 1990 to 2014. The convergence in the level of economic development between India and her trading partner(s) positively influences total IIT and its two broad forms. Similarity in relative factor endowments and regional trade agreement through South Asian Free Trade Area (SAFTA) is found to promote horizontal IIT. Having a large market size, the distortionary impact of tariff has not been able to dampen the magnitude of India’s IIT. Relative depreciation of trading partner’s real exchange rate enhances India’s imports and inhibits the growth of total and vertical IIT. Geographical distance adversely affects all forms of IIT. JEL Codes: C23, F14

Suggested Citation

  • Sagnik Bagchi & Surajit Bhattacharyya, 2019. "Country-Specific Determinants of Intra-Industry Trade in India," Foreign Trade Review, , vol. 54(3), pages 129-158, August.
    • Handle: RePEc:sae:fortra:v:54:y:2019:i:3:p:129-158
    DOI: 10.1177/0015732519851630
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    Cited by:

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    3. Mohini Gupta & Sakshi Varshney, 2023. "Non-linear Effect of Real Exchange Rate Variability with Macroeconomic Variable on Non-Petroleum Commodities of India– US Trade," Foreign Trade Review, , vol. 58(2), pages 289-328, May.
    4. Aggarwal, Sakshi, 2023. "The empirical measurement and determinants of intra-industry trade for a developing country," MPRA Paper 117112, University Library of Munich, Germany.
    5. Sagnik Bagchi & Surajit Bhattacharyya, 2021. "Industry-level determinants of India’s vertical and horizontal IIT," Indian Economic Review, Springer, vol. 56(1), pages 113-145, June.
    6. Sakshi Aggarwal & Debashis Chakraborty, 2020. "Labour Market Adjustment and Intra-Industry Trade: Empirical Results from Indian Manufacturing Sectors," Journal of South Asian Development, , vol. 15(2), pages 238-269, August.
    7. Omphemetse S. Sibanda, Sr, 2021. "The Advent of the African Continental Free Trade Agreement as a Tool for Development," Foreign Trade Review, , vol. 56(2), pages 216-224, May.

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    More about this item

    Keywords

    Horizontal and vertical IIT; unbalanced panel; panel corrected standard errors;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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