Share of Horizontal Intra-Industry Trade (HIIT) and Vertical Intra-Industry Trade (VIIT) in India's Intra-Industry Trade (IIT): An Empirical Study.
Thus the aim of the present study is to analyze IIT of India and the World and to dichotomize IIT into HIIT and VIIT to depict the trade pattern on the basis of product quality.
Data and Methodology
The secondary data is used to conduct the analyses. The data is extracted from World Integrated Trade Solutions (WITS) official website. The methodology adopted to observe the level of IIT is the uncorrected Grubel and Lloyd Index (1975):
GLi = (Xi+Mi) - [absolute value of Xi - Mi]/(Xi+Mi) * 100
Where GLi is the Grubel and Lloyd Index for industry i. X and M are the exports and imports. The value of this index varies between 0 and 100. At 0 all trade is inter-industry trade and at 100 all trade is Intra-Industry Trade. Weighted Grubel-Lloyd Index involves multiplying the GLi with the weights at each industry level to get an aggregated value for an industry as a whole or at the level of the nation. Weighted Grubel-Lloyd Index is:
WeightedGli = Gli * (Xi+Mi)/[summation](X+M) * 100
As for the dichotomization of IIT into HIIT and VIIT, Greenaway et al (1995) methodology based on the Unit Values (UV) of exports (UVx) and imports (UVm) is used. This is analyzed at the 15 per cent limit. If the UV of export relative to import is within 15 per cent, then the industry is said to horizontally differentiate otherwise it is classified as vertical. UV is classified as horizontal if:
1 - [infinity][less than or equal to]UVx/UVm [less than or equal to] 1+[infinity]
UV is classified as vertical if:
1 - [infinity] > UVx/UVm
1 - [infinity] < UVx/UVm
Where [infinity] = 15%. Firstly all industries in which either exports
or imports is zero are eliminated. Then, the industries on the basis of UV are classified into horizontal or vertical category. In each category thereafter average IIT is calculated. But Bhattacharyya (2002) pointed that the Greenaway et al method does not give unbiased results as, for example, if HIIT category has a few number of industries and VIIT has a larger number of industries, then average IIT will not depict the true picture. Therefore Bhattacharyya (2002) put across the modified method which is:
NIITver = (Mver + Xve/Mtot + Xtot) * GL(U)ver Mtot + Xtot
NIIThor = (Mhor + Xhor/Mtot + Xtot) * GL(U)hor
Where [NIIT.sub.ver] is the Bhattacharyya modified Index for calculating VIIT in vertically differentiated industries and [NIIT.sub.hor] in horizontally differentiated industries. [M.sub.ver] and [X.sub.ver] are the imports and exports in vertically differentiated industries. Similarly [M.sub.hor] and [X.sub.hor] in horizontally differentiated industries. And [M.sub.tot] and [X.sub.tot] are:
Mtot = Mver + Mhor
Xtot = Xver + Xhor
Thus the advantage of using this index is that the values increases or decreases as the proportion of trade accounted for by the particular category (horizontal or vertical) increases or decreases.
Results and Discussion
In Table 1 the number of industries in which India engages in trade with the World is mentioned. This was observed at the 4-digit Harmonized System of Coding (HS) during 2016. The findings are:
(i) The 4-digit HS coding is classified into 1224 industries in total.
(ii) India engages in exports in 1213 industries to the World.
(iii) India imports in 1184 industries from the World.
Thus, India is found to be trading in a large number of industries with the World although it exports in a larger number of industries than it imports, nevertheless both the numbers are quite significant. This indicates that the liberalization in trade in 1991 has been quite fruitful.
Level of IIT
In Table 2 the observed level of IIT is depicted along with the number of industries in which two-way trade took place during 2016. The observations are:
(i) India engages with the World in both exports and imports in 1178 industries.
(ii) The Grubel-Lloyd un-weighted and weighted index gives similar results at 41.1005 and 40.339 respectively.
(iii) Thus roughly about 40 per cent of India's trade is two-way.
The findings reveal that India engages in two-way trade in a large number of Industries with the World and although nearly 40 per cent of India's trade is two-way but still one-way trade is also quite significant and dominant in India's case.
Number of Industries in which Unit Values are attained
In Table 3 the Number of Industries in which the Unit Values of exports and imports are attained during 2016 is discussed. These are:
(i) Unit Values of exports are available in 1035 industries at the 4-digit level during 2016.
(ii) Unit Values of imports are available for 1008 industries at the 4-digit level during 2016.
(iii) Both export and import Unit Values are attained for 1000 industries at the 4-digit level during 2016.
Thus the Unit Values for both exports and imports are available for 1000 industries during 2016 and hence analysis would be conducted for these 1000 industries while dichotomizing IIT intohorizontal IIT and vertical IIT.
Industries classified into the Horizontal and Vertical IIT category
In Table 4 the 1000 industries (Table 3) for which the Unit Values of both exports and imports were attained have been classified into the category of horizontally differentiated and vertically differentiated. The observations registered are:
(i) In 167 industries India engages in horizontal IIT during 2016 with the World.
(ii) In 833 industries India engages in vertical IIT during 2016 with the World.
Overall, India engages in vertical IIT in many more number of Industries during 2016. This implies that a larger share of India's two-way trade is based on differences in quality.
Horizontal IIT and Vertical IIT
Table 5 incorporates the results of Horizontal IIT and Vertical IIT during 2016 at the 4-digit HS coding. The Grubel-Lloyd Uncorrected Index results are also mentioned alongside the Bhattacharyya 2002 correction. The following observations were made:
(i) The Bhattacharyya 2002 correction finds VIIT to be more significant at 33.305 and HIIT at 6.3005.
Thus the NIIT points to VIIT at 33.305 having a larger share of total IIT than HIIT at 6.3005. India's two-way trade is dominated by exchanges in products with different quality.
Division of Vertical IIT industries
In Table 6, the VIIT industries are further divided into two, firstly those in which price of exports is greater than the price of imports and secondly those in which price of exports are lesser than the price of imports. Thus the implications are:
(i) Of the 833 industries classified as vertically differentiated, in 349 industries export prices are greater than the import prices. Thus in these industries, India exchanges costlier products for cheaper ones from the World.
(ii) In 534 vertically differentiated industries, the export prices are lesser than the import prices. Thus in these industries, India exchanges cheaper products for the costlier products it buys from the World.
Overall, India in a larger number of the vertically differentiated industries exports cheaper products for the dearer imports from the other nations in the World.
The main findings are as follows:
(i) At the 4-digit HS Coding the total number of industries is 1224, of which India exports in 1213 industries and imports in 1184 industries.
(ii) India's 40 per cent of total trade is two-way trade and this takes place in 1178 industries.Unit Values are attained for 1000 industries, of which 167 industries are classified as engaging in horizontal IIT and 833 in vertical. Thus India engages is more rigorous two-way trade in industries based on quality differences.
(iii) Of the total two-way trade, 33.305 is classified as vertical and 6.3005 as horizontal. Thus vertical IIT is not only in a larger number of industries but also forms a very significant share of total two-way trade.Of the 833 vertically differentiated industries, India exports cheaper goods in exchange for costlier goods in 534 industries. Whereas, it exports costlier goods for the imports of cheaper goods in 349 industries. Thus in a larger number of industries India exchanges cheaper goods for the dearer ones.
Indian Economy's two-way trade is around forty per cent of India's total trade in 2016. Moreover, of the 40 percent of IIT, a much greater share is of vertical IIT at 33.05 in comparison to the 6.3005 of horizontally differentiated trade. Thus, India is largely engaged in two-way trade based on differences in quality as well as price.
Balassa, Bela (1966): "Tariff Reductions and Trade in Manufacturers among the Industrial Countries", The American Economic Review, Vol. 56, No. 3, pp. 466-473.
Bhattacharyya, Ranajoy (2002): "Vertical and Horizontal Intra Industry Trade in Some Asian and Latin American Less Developed Countries", Journal of Economic Integration, Vol. 17, No. 2, pp. 273-296.
Greenaway, David, Robert Hine and Chris Milner (1995): "Vertical and Horizontal Intra-Industry Trade: A Cross Industry Analysis for the United Kingdom", The Economic Journal, Vol. 105, No. 433, pp. 1505-1518.
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WITS 1992 to 2015: World Integrated Trade Solution Database, available at wits.worldbank.org.
Table 1: Number of Industries in which India engaged in Exports and Imports at the 4-digit HS Coding during 2016 Total Number of Industries at the 1224 4-digit HS Classification Exports 1213 Imports 1184 Note: As per the data available on World Integrated Trade Solutions (WITS), data accessed in May 2017. Table 2: Number of Industries and the level of IIT at the 4-digit HS Coding during 2016 Number of Industries in [GL.sub.unweighted] [GL.sub.weighted] which IIT attained 1178 41.1005 40.339 Note: Calculations as per the data available on World Integrated Trade Solutions (WITS), data accessed in May 2017. Table 3: Number of Industries in which Unit Values attained at the 4-digit HS Coding during 2016 Exports Unit Values Imports Unit Values quantity of Exports quantity of Imports unavailable attained unavailable attained Number of 178 1035 176 1008 Industries Unit Values for both Exports and Imports attained Number of 1000 Industries Note: As per the data available on World Integrated Trade Solutions (WITS), data accessed in May 2017. Table 4: Number of Industries dichotomized into horizontally and Vertically Differentiated at the4-digit HS Coding during 2016. Unit Values of Number of industries both Exports and Horizontally Imports attained differentiated Number of 1000 167 Number of Industries Vertically differentiated Number of 833 Industries Note: As per the data available on World Integrated Trade Solutions (WITS), data accessed in May 2017. Table 5: Level of Horizontal IIT and Vertical IIT at the 4-digit HS Coding during 2016 NIIT HIIT VIIT 6.3005 33.305 Note: Calculations as per the data available on World Integrated Trade Solutions (WITS), data accessed in May 2017. Table 6: Division of Industries with Vertical IIT into those having higher export prices than imports prices and lower export prices than imports prices during 2016 as per 4-digit HS Coding at 15% level [P.sub.exports] > [P.sub.exports] > Total Number of [P.sub.imports] [P.sub.imports] Industries India 349 534 833 Note: Calculations as per the data available on World Integrated Trade Solutions (WITS), data accessed in May 2017.
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|Author:||Kular, Simran Kaur|
|Publication:||Political Economy Journal of India|
|Date:||Jul 1, 2018|
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