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Which Factors influence Vertical Intra-Industry Trade in India? Empirical Results from Panel Data Analysis

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  • Sakshi Aggarwal

    (Doctoral Scholar, Indian Institute of Foreign Trade (IIFT)

  • Debashis Chakraborty

    (Indian Institute of Foreign Trade, India)

Abstract

Over the last two decades, India has witnessed a rise in its both-way trade flows, reflected in the rising Intra-Industry Trade (IIT) indices both at aggregate and sectoral levels. A major branch of the associated literature focuses on decomposition of the IIT in Vertical IIT (VIIT) and Horizontal IIT (HIIT) categories, defined in terms of quality of the products being exported and imported simultaneously. Through a data analysis of select manufacturing sectors, the current paper concludes that India’s IIT is predominantly vertical in nature, displaying an increasing trend over 2001-19. A panel data analysis on the determinants of India’s VIIT during 2001-15 indicate that increase in capital-intensity, higher skill-intensity of workforce, higher research and development orientation and decline in industrial concentration facilitates the same. In addition, the interaction terms reveal that rising sophistication in product quality also positively influence VIIT. The paper concludes that there is a need for the country to identify and promote key technology-intensive sectors to realize the ‘Make-in-India’ and ‘Atmanirbhar Bharat Abhiyan’ objectives in long run.

Suggested Citation

  • Sakshi Aggarwal & Debashis Chakraborty, 2021. "Which Factors influence Vertical Intra-Industry Trade in India? Empirical Results from Panel Data Analysis," Working Papers 2154, Indian Institute of Foreign Trade.
    • Handle: RePEc:ift:wpaper:2154
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    6. Aggarwal, Sakshi, 2023. "Machine Learning algorithms, perspectives, and real-world application: Empirical evidence from United States trade data," MPRA Paper 116579, University Library of Munich, Germany.

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    More about this item

    Keywords

    India’s Trade policy; Manufacturing sector; Vertical Intra-industry Trade; Foreign Direct Investment; Panel data analysis; Atmanirbhar Bharat Abhiyan;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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