Inter-industrial trade

Inter-industrial trade is the type of trade that is based on the exchange of goods between different product groups. There are industrial goods either exported in partner countries or imported or traded within a country between the various branches of industry.

Inter-industrial trade in foreign trade models

The inter-industrial trade ( asymmetrical trade with different products) is described in several models.

Ricardo Model (Classical Trade Theory)

A country has absolute advantages in the production of a good if more of the good can be produced with the same production factors than in the other country. With appropriate specialization, more can be produced worldwide.

A country has comparative advantages in the production of the good, the opportunity cost of which in units of the other good is lower than in the other country. A corresponding specialization leads to an increase in world production of both goods.

Thus the relative price of the two goods corresponds to the opportunity cost of production.

The price change will continue until the relative prices in the two countries are identical. The price has to level off in such a way that the export and import quantities of the respective goods from the two countries correspond (identical "trade triangles"). Instead of different price ratios in the two countries, there is now only one world market price ratio when trading is self-sufficient . This is called the " Terms of Trade ".

Heckscher-Ohlin model

Different factor endowments are assumed to be the cause of trade. Trade is macroeconomically beneficial for all countries. However, trade has a strong impact on the distribution of income. The relatively more abundant factor of production will advocate free trade , while the relatively rarer factor will advocate protection. Trade leads to an equalization of factor prices without the production factors having to move. Another model would be the Ricardo Viner model .

Explanations

Foreign trade is carried out for various reasons:

1. Unavailability (e.g. bananas)
   1. Due to climatic conditions
   2. Due to government restrictions
   3. Permanently not available
   4. Temporarily not available
2. Price differences (e.g. textiles)
   1. there are regions that have lower production costs
   2. Due to labor intensity
3. Heterogeneous competition
   1. the same products are made in different countries and one does not buy in one's own country, which accounts for most of the foreign trade
   2. Inter-industrial trade and comparative cost advantages lead to prosperity effects

Among the industrial sectors there are four branches of industry in which trade within the European Union is of an inter- industrial nature: wine, shoes, clothing and machine tools. The country produces something and delivers to another country. No replacement. This must be seen as the exception. Intra-industrial trade is the usual form due to economies of scale predominating today.

Examples

There are four major wine-producing countries - Portugal, Spain, Italy, France. They deliver to the other EU countries, all of which are net importers. In the shoe industry, Portugal, Spain, Italy and Greece export to the other countries, which are also net importers in this case. In the clothing industry it is the same countries except Spain. In the machine tool sector there are two major manufacturing countries, Italy and Germany. They achieve a large surplus in trade with the other EU member states, here too Spain is in the middle. Overall, this inter-industrial trade (asymmetrical trade in different types of products) is only predominant in very few countries. The classic comparative advantages that essentially explain this type of trade are of different types:

Natural resources (wine, champagne) or labor costs (shoes, clothing). In the case of the machine tool industry, however, this is less clear, since the specialization of Italy and Germany in this area of ​​industrial activities does not seem to be based on such clear comparative advantages.

If one compares the two industrial types one can see that the trade between the northern and southern countries is still predominantly of an inter-industrial nature, while the intra-branch trade takes place mainly between the northern countries. Given relative income, the share of intra-industrial trade in total trade will increase as countries become more similar in terms of their relative factor endowments . In this case, the share of inter-industrial trade will consequently decrease. On the diagonal of the Edgeworth box , all trade is intra-industrial trade. If, on the other hand, the busy country specializes entirely in the labor-intensive homogeneous good, there is no intra-industrial trade. The net export of the differentiated product corresponds to the imports of the homogeneous product (interindustrial trade). The rest of the trade volume consists of intra-industrial trade in differentiated goods.

Demarcation

Inter-industrial trade is the counterpart to intra-industrial trade . This involves the exchange of goods from the same production sectors.

Measuring instrument

Grubel-Lloyd Index

This index provides information about the ratio of intra-industrial to inter-industrial trade in a country. As soon as the index takes the number 0, there is only inter-industrial trade in the market. The extremum of the index reflects the number 1; only intra-industrial trading takes place in this market.

${\displaystyle I=1-{\dfrac {\left|Export-Import\right|}{Export+Import}}}$

Relationship with economies of scale : Intraindustrial trade is based on the existence of economies of scale in production. The economies of scale lead to cost advantages with increasing production volumes. Nevertheless, there is not only one company left on the market, as different variants exist and each company can only concentrate on one of these variants.

literature

• Paul R. Krugman, Maurice Obstfeld: International Economy. Theory and Politics of Foreign Trade. Pearson, Munich 2006. ISBN 3-8273-7081-7
• Paul A. Samuelson: Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization. in: Journal of Economic Perspectives. Nashville Ten 18.2004, 3, pp. 135-146. ISSN  0895-3309
• Klaus Rose, Karlhans Sauernheimer: Theory of foreign trade. 13th edition. Vahlen, Munich 1999. ISBN 3-8006-0724-7