The document discusses various metrics for measuring intra-industry trade, including the Grubel-Lloyd index. It provides examples of intra-industry trade between the Philippines and Japan in 1998 across various industries. It also examines the intra-industry trade index values of different countries from 1988-2000 and explores explanations for intra-industry trade such as economies of scale and variety in demand.

1. Intra-Industry Trade

2. Definition Trade in which a country exports and imports in the same industry, in contrast to inter-industry trade. Example: Korea exports and imports cars.

3. Measuring intra-industry trade Use the Grubel-Lloyd (GL) index to measure intra-industry trade International trade between The Philippines (RP) and Japan; 1998* SITC Exports from RP Imports into RP GL index 8 Miscellaneous manufactured articles 383,167 576,412 0.80 81 Prefabricated buildings 4,147 2,186 0.69 82 Furniture and parts thereof 42,332 6,155 0.25 83 Travel goods, handbags and similar containers 4,804 67 0.03 84 Articles of apparel and clothing accessories 115,627 3,255 0.05 85 Footwear 13,283 920 0.13 87 Prof. scientific & controlling instruments 24,091 175,018 0.24 88 Photographic apparatus 72,174 123,333 0.74 89 Miscellaneous manufactured articles 106,709 265,477 0.57

4. GL index (or IIT index) X M X M X M IIT=1 IIT=0 IIT=0.33

5. GL index (or IIT index) The intra-industry trade index of home country with a country j for an industry i is: The intra-industry trade index of home country with a country j is: where

6. IIT index (or GL index) of selected countries 1988-91 1992-95 96-2000 High and increasing IIT Czech Republic n.a 66.3 77.4 Slovak Republic n.a 69.8 76 Mexico 62.5 74.4 73.4 Hungary 54.9 64.3 72.1 Germany 67.1 72 72 United States 63.5 65.3 68.5 Poland 56.4 61.7 62.6 Portugal 52.4 56.3 61.3 High and stable IIT France 75.9 77.6 77.5 Canada 73.5 74.7 76.2 Austria 71.8 74.3 74.2 UK 70.1 73.1 73.7 Switzerland 69.8 71.8 72 Belgium-Luxembourg 77.6 77.7 71.4 Spain 68.2 72.1 71.2 Netherlands 69.2 70 68.9 Sweden 64.2 64.6 66.6 Denmark 61.6 63.4 64.8 Italy 61.6 64 64.7 Ireland 58.6 57.2 54.6 Finland 53.8 53.2 53.9 Low and increasing IIT Korea 41.4 50.6 57.5 Japan 37.6 40.8 47.6 Low and stable IIT New Zealand 37.2 38.4 40.6 Turkey 36.7 36.2 40 Norway 40 37.5 37.1 Greece 42.8 39.5 36.9 Australia 28.6 29.8 29.8 Iceland 19 19.1 20.1

7. Measuring intra-industry trade Increasing importance of intra-industry trade

8. Explaining intra-industry trade Supply side: economies of scale Demand side: love for variety

9. Explaining intra-industry trade

10. An Alternative interpretation: intermediate goods

11. An Alternative interpretation: intermediate goods Internationalization of production

12. Japan’s Case

13. U.S.-Japan trade Japan and U.S. are important trading partners U.S. is Japan’s largest trade partner Japan is the third or fourth largest U.S. trading partner Japan has been running trade surplus U.S. has been running trade deficit

14. U.S. and Japan are important trading partners

15. Japan’s trade surplus and U.S. trade deficit

16. Pattern of inter-industry trade Comparative advantage determines the pattern of inter-industry trade Japanese pattern of inter-industry trade reflects the comparative advantage very well Japan’s exports skewed toward industries such as machinery and transportation machinery The imports skewed toward food, raw materials, and fuels

17. Pattern of inter-industry trade: Japan and U.S.

18. Intra-industry trade Inter-industry trade is not the whole story of today’s international trade Country often exports and imports in the same industry Variety of preferences within a country (or preference for variety as the country) induces intra-industry trade

19. Intra-industry trade index Source: C. Fred Bergsten, Takatoshi Ito, and Marcus Noland (2001). No More Bashing . Institute of International Economics, Table 4.2. 0.43 0.28 South Korea 0.59 0.59 United Kingdom 0.50 0.56 Germany 0.62 0.55 United States 0.36 0.26 Japan 1997 1990

20. Japan’s low intra-industry trade GL is very low for Japan. Why? Several possibilities Japan is closed for foreign goods Japan’s preferences are different (less variety?) Transportation costs make intra-industry trade more costly (but Japan’s m is lower than that for South Korea) Poor natural resources in Japan make Japan depend more on inter-industry trades (how about Korea?)

21. Horizontal IIT vs. Vertical IIT

22. HIIT vs. VIIT HIIT: intra-industry trade in horizontally differentiated products (products differentiated by attributes) VIIT: intra-industry trade in vertically differentiated products (products differentiated by quality)

23. HIIT vs. VIIT or HIIT VIIT

24. Korea’s Case Source: 오근엽 , 주혜영 (2000) “ 한국의 수평적ㆍ수직적 산업내무역과 국가특성 : OECD 국가와의 무역을 중심으로” , 국제통상연구 제 5 권 제 1 호

25. Korea’s IIT index 18.11 10.30 Italy 21.11 14.52 France 16.49 10.07 Germany 25.17 16.19 UK 33.00 26.25 Japan 44.16 26.55 US 14.76 8.15 Belgium-L 14.59 7.88 Denmark 9.63 7.40 Netherlands 10.19 7.61 Canada 12.73 7.61 Swiss 13.70 7.84 Finland 1997 1994 대상국 4.70 4.74 Norway 5.18 5.28 Austria 3.57 4.32 Ireland 5.67 5.62 Australia 6.02 6.14 Spain 6.24 6.39 Sweden 2.73 2.04 N. Zealand 2.64 1.94 Mexico SITC 5 digit 0 0.41 Greece 0.43 0.69 Iceland 2.33 1.49 Portugal 1997 1994 대상국

26. Korea’s HIIT & VIIT index 10.1 1.4 6.5 0.9 89.8 13.0 93.4 13.5 14.5 France 10.3 1.6 6.4 1.0 89.6 14.5 93.5 15.1 16.1 UK 14.9 3.9 9.3 2.4 85.0 22.3 90.6 23.7 26.2 Japan 12.1 3.2 7.5 1.9 87.8 23.3 92.7 24.5 26.5 US share in IIT share in total share in IIT share in total share in IIT share in total share in IIT share in total a=25% a=15% a=25% a=15% HIIT VIIT Total IIT

27. Determinants of IIT Difference of capital intensity Proxy: difference in GDP per capita Size of the economy of both countries Difference of the size of the economy distance

28. Empirical results - + + + VIIT (a=25%) - - + - HIIT (a=25%) -0.0576 (-3.32) -0.0041 (-0.06) -0.0118 (-0.50) DIST 0.98 92 -0.5980 (-3.52) 0.0006 (9.35) 0.2904 (1.12) -3.9673 (-12.29) 0.923 92 0.917 92 R 2 N 0.5841 (3.42) 0.4298 (2.59) DGDP 0.0002 (3.13) 0.0030 (4.27) SGDP 0.0578 (0.21) 0.0064 (0.22) DPCI -2.9074 (-7.19) -2.6022 (-6.44) Constant IIT

29. Export Similarity Index

30. ESI measures the competition between the country a and the country b in the country c. X i (ac) is the share of the product i in the exports of the country a to country c. X i (bc) is the share of the product i in the exports of the country b to country c. Export Similarity Index (ESI)

31. Export Similarity Index (ESI) ESI = 1 ESI = 0 0 0 0 0 0 0 6 3 4 2 B A 0 0 10 0 20 0 0 3 0 2 B A 5 4 3 2 1 Prod 5 4 3 2 1 Prod

32. The effect of weak yen

33. The effect of weak yen A weak Yen can affect the segments of Asia’s exports that compete directly with Japan in third markets. Japanese exporters would benefit from a weak Yen as they would be able to price their products cheaper in US$ terms, and this would reduce the demand for other Asian countries exports. However, the impact would not be uniform across the Asian economies. Korea and Taiwan, which have trade structures highly similar to Japan and as such compete more with the latter in the same markets, will suffer more from a weak Yen. In 2000, close to two-thirds of all products exported by the NIEs were in the same category as Japan. ASEAN economies such as Indonesia and the Philippines, as well as China, whose exports do not directly compete with Japanese manufacturers, are not expected to suffer much from a weak Yen.

34. ESI between China and Korea

35. Export Similarity between intra-regional exports and extra-regional exports Source: estimated from UN COMTRADE dataset 53.5 40.1 49.6 50.2 56.8 32.7 21.1 37.4 49.1 39.4 Par - 51.2 49.6 49.8 52.6 47.2 46.3 52.1 56.3 38.3 Chile 36.4 36.1 35.1 34.8 38.6 40.3 39.0 39.0 40.0 45.0 Brazil 32.3 33.0 33.3 30.5 34.5 34.0 35.2 39.5 38.0 - Arg 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 ESI between intra- & extra-regional exports: Mercosur

36. Structural Change Index

37. SCI measures the extent to which industries are growing at different rates, which results in compositional shifts – that is, structural change. S i,t is the share of output (or employment) of the industry i at period t. Structural Change Index (SCI)

38. Structural Change Index (SCI) SCI = 0 SCI = 1 0 0 0 0 0 0 6 3 4 2 t1 t0 0 0 10 0 20 0 0 3 0 2 t1 t0 5 4 3 2 1 Prod 5 4 3 2 1 Prod

39. Structural Change Index (SCI) SCIs do not measure changes in the overall level of activity or employment — the index would be zero if all industries were growing (or declining) at the same rate. Any changes in the output or employment shares of the different industries used to compile the SCIs reflect the ‘net’ impact of the many influences on the composition of output and employment — some of which pull in different directions. For example, increases in demand for some of the products of a particular industry group may be offset by reductions or slower rates of demand growth for other products of the same industry group.