Intra-industrial trade

Has a country within the same industry both imports and exports , it is called the intra-industry trade (ger .: intra-industry trade , IIT). This concept of economics describes a special form of foreign trade or world trade . It describes the cooperation of several economies that trade similar goods or services with one another. Due to the trade, there is a greater variety of products on the domestic markets without the companies having to further expand the range of products they produce.

definition

Intraindustrial trade is a special type of foreign trade, which describes the international exchange of goods, services and the exchange of production parts of the same production sectors with trading partners (e.g. industrial goods for industrial goods). The trading partners import and export industrial products of the same group of goods. The goods are the same when they are exchanged, ie they have the same function and the same manufacturing technologies, but they are not identical. This is why they are also referred to as imperfect substitutes, i.e. goods that are not directly interchangeable with one another. Other terms for intra-industrial trade are substitutive, preference-oriented, intersectoral or intra-branch trade.

history

The concept of intra-industrial trade was first described in 1960 by Pieter Verdoorn and in 1966 by Bela Belassa . The phenomenon of intra-industrial trade was empirically noted when a group of European countries formed the European single market . This market has now grown into the European Union and consists of 28 member states. Intraindustrial trade is based on observations that were previously theoretically justified by the economists Herbert G. Grubel and Peter J. Lloyd and which they documented in 1975. Before this theoretical approach was published, macroeconomic foreign trade theory was based on the assumption that countries only exchange different goods with one another or that the same goods are either exported to or from a country. The form of intra-industrial trade could not be explained by the previously existing models of comparative advantage .

Delimitation of intra- and inter-industrial trade

Intra-industrial trade prevails when, for example, Germany imports French cars and German cars exports to France . The goods are the same because they have the same function, have been manufactured using the same technologies and thus belong to the same group of industrial goods, but they are not identical. These same but not identical goods are called imperfect substitutes . In economic terms, the goods are therefore not directly interchangeable. Consumers can ask for different variations of similar products from the same industry, but they cannot ask for identical products from the same industry. Inter-industrial trade is the opposite of intra-industrial trade. In inter-industrial trade, goods from different production sectors are exchanged between countries. For example, Germany exports cars to China and imports Chinese computers.

Causes and Reasons for Intra-Industrial Trade

The causes of this trade are, on the one hand, that the needs of consumers are becoming more and more specific and thus expanding, although there is a corresponding substitute from domestic production and, on the other hand, it is the technological developments that enable new product variants and innovations. Another reason would be that there is either an absolute or comparative cost advantage for the exporting country compared to the importing country. The absolute cost advantage is understood to mean the productivity advantage of a producer when producing a certain good, and the comparative cost advantage is the opportunity cost advantage of a producer when producing a good.

According to Adam Smith , foreign trade means a huge increase in the market. Intra-industrial trade thus represents a larger market for certain goods. As a result of the expansion, additional goods can be sold and additional foreign trade profits can be made. In addition, intra-industrial trade increases the income of all residents, and the increase in wages also increases the demand for products. The larger production volume of a good results in lower average costs for this good. The lower average costs in turn mean that these goods can be produced with a lower factor input than in two separate, smaller markets. Households, companies and the state or national economies can reduce their own production of certain goods and at the same time increase or keep their product diversity on the domestic market constant if they engage in intra-industrial trade. This in turn leads to increased productivity . For the consumer, the variety of products has the advantage of a larger selection of different products on the market. The wide range of products increases competition for companies because the consumer decides which product to buy. In practice, increasing competition usually leads to lower prices for the product.

to form

Horizontal trade

Horizontal intra-industrial trade refers to the exchange of the same goods in the same industry in different variants. The variation consists, for example, in the price category or in the function of the product. The product belongs to a similar group of industrial goods and therefore has the same but not identical function. The horizontally intra-industrial traded products are in the same processing step of production. For example, Germany exports the fully assembled car to France and imports the fully assembled French car. This creates a high variety of products for the consumer and he determines the demand through his preferences.

Vertical trading

Vertical intra-industrial trade refers to the exchange of the same goods in the same industry that are in different processing steps. This form of trade presupposes the possibility that the production process can take place in different stages. In theory, it must be possible to perform the individual processing steps in separate locations. In this way, the producers are able to take advantage of the respective local conditions such as B. inexpensive factor equipment (labor) in manufacturing or specialized factor equipment in research and development. For example, China imports technology-intensive auto parts for final assembly. To this end, China uses its abundant labor for the labor-intensive final assembly of the cars before they are exported to Germany again (as part of the assembled car).

Measuring instrument

The Grubel-Lloyd Index ( ) is a relatively simple measure of a country's intra-industrial trade. The index ( ) stands for a similar product and is defined as: ${\ displaystyle {\ text {GL}} _ {\ text {i}}}$ ${\ displaystyle {\ text {i}}}$

{\ displaystyle {\ text {GL}} _ {\ text {i}} = 1 - {\ dfrac {\ left | {\ text {Export}} - {\ text {Import}} \ right |} {{\ text {Export}} + {\ text {Import}}}}}

If an economy exports as much as it imports within an industry with another economy, the result of equation is 1 and represents the extreme of the index ( ). In this market there is only intra-industrial trade for this product. If a country only imports or exports with another country, the result of the equation is 0 ( ). There is no intra-industrial trade in this market. ${\ displaystyle {\ text {Export}} = {\ text {Import}}}$ ${\ displaystyle {\ text {Export}} / {\ text {Export}} = 1 {\ text {or}} {\ text {Import}} / {\ text {Import}} = 1}$

	Name of the sector
0	Food / live animals
1	Drinks / tobacco
2	raw materials
3	Fuels / technical oils
4th	Animal / vegetable oils
5	Chemicals
6th	Primary products
7th	Machines and vehicles
8th	Finished products
9	Other goods and processes

The size of the Grubel-Lloyd-Index depends on the expansion of the branch term for which intra-industrial trade is to be measured. According to the International List of Goods for Foreign Trade (Standard International Trade Classification), trade is divided into ten sectors. The first subdivision is called 1-digit-level (single-digit level) (sector 0 to 9) and can be further subdivided within the individual sectors (2-digit-level, 3-digit-level etc.).

Machines and vehicles, for example, represent the seventh sector of the first subdivision. This sector can be further subdivided into general industrial machines and equipment (sector 74) or road vehicles (sector 78). A third subdivision would then be possible in sector 78 into passenger cars (sector 781) or trucks (sector 782) etc.

According to the International Trade Center in Switzerland, which is a network of the World Trade Organization and the United Nations, the sectors are divided according to the factor intensity that has to be applied to manufacture the product:

Raw material intensive (oil, minerals, grain, etc.)
Natural resource intensive (wood, copper, pig iron etc.)
high intensity of unskilled labor
high intensity of skilled workers
technology-intensive.

For example, looking at the automotive industry, China could focus on the labor-intensive final assembly of cars and import technology-intensive products and car parts from Germany. With this interaction, the two countries would be able to manufacture cars in large quantities and take advantage of mass production. Goods that cannot be produced in-house are imported in order to serve the consumers for these goods on the domestic market. So there are different variants of the products in addition to the self-made products.

Framework

Intra-industrial trade means that a greater variety of products can be offered on the domestic market. As a result, the available variety of production can meet the special needs of consumers. The benefit of a product for the consumer is increased by the special satisfaction of needs. This leads to an increase in social welfare.

Intra-industrial trade can be carried out when economies of scale (indicate the change in output when all input factors increase proportionally) and product variations are important decision criteria for trade. Furthermore, the production supply, the production conditions and the demand conditions in both countries must be identical.

Under these conditions, the effect or effect of income distribution is small and countries can generate significant additional profits from intra-industrial trade.

The relative importance of intra-industrial trade depends on the degree of economic similarity between the countries involved. If the factors capital and labor are similar in these countries, intra-industrial trade dominates. If the factor endowments differ widely, economies with a relatively large amount of capital can specialize in capital-intensive products. For example, countries with a relatively large number of skilled and / or unskilled workers can specialize in labor-intensive products.

Framework conditions are influenced by certain political, economic and social developments. They are the cause of certain forms of learning in an economy, so that, for example, different innovation potentials of individual industries can arise. State regulations can inhibit certain development potentials and thus dampen price and innovation competition in a country.

development

Development of intra-industrial trade in Germany 1970–2014 as measured by the Grubel-Lloyd index.

The trade concept has played an important role in the national economy since the last century. From 1975 onwards, this type of trade was relatively easy to measure quantitatively using the Grubel-Lloyd Index . This enabled the values to be compared with one another and significant increases in intra-industrial trade were found for most OECD countries since the late 1980s.

Intra- industrial trade takes place between the industrialized countries . In terms of technology and resources , these industrial nations are similar.

With the help of the Grubel-Lloyd-Index, the shares in intra-industrial trade are more than 80% of the total industrial goods trade. However, these dates may vary depending on how the industry term is interpreted.

The importance of intra-industrial trade in most EU member states increased significantly. These member states belong to the Organization for Economic Cohesion and Development at OECD . In 2002 the OECD published an increase in intra-industrial trade in Germany. This rose from 67 to 72% within 5 years.

If we take a closer look at intra-industrial trade, 18.7% of German exports within the EU in 2005 consisted of motor vehicles and motor vehicle parts. Motor vehicles and motor vehicle parts accounted for 13.9% of German imports from the EU. Chemical products accounted for 13.0% of German EU exports and 13.4% of German EU imports. 11.0% of machines were exported to the EU and 6.7% were imported from the EU.

Relation to economies of scale

In manufacturing, intra-industrial trade is based on the existence of economies of scale . An increase in the economies of scale leads to cost advantages, since when the factor input is doubled, the production volume more than doubles, so that the average factor input decreases due to the increasing production volume.

For example, Germany is theoretically able to manufacture French cars because it has the same technological prerequisites and capabilities as a French manufacturer. For the production of this car, however, Germany would have to accept high investment costs in the early years in order to build up new production capacities.

In the case of French cars, the economies of scale are expressed at a very low level, whereas the German car has already reached a high level after many years of production. Due to the additional production of French cars by the German manufacturer, the economies of scale would decrease at the beginning and only increase again with constant production. In economic theory, falling economies of scale mean that Germany only produces a limited number of product variants itself.

literature

Charles van Marrewijk: International Economics. 1st edition. Oxford University Press, New York 2007, ISBN 978-0-19-928098-8 .
Herbert G. Grubel: Theory and Measurement for Economic Policy. International Adjustment, Money and Trade. Edward Elgar Publishing 1993, ISBN 1-85278-787-2 .
Jai – Young Choi, Eden SH Yu: External Economies in the International Trade Theory: A Survey. Review of International Economics. Blackwell Publishers November 2002.
Günther S. Heiduk: Foreign trade. Physica-Verlag, Heidelberg, 2005, ISBN 3-7908-0181-X .
Heinz G. Preuße: Conceptual considerations for international competitiveness. ub.uni-koeln.de p. 5 ff.

Individual evidence

↑ ^a ^b ^c ^d ^e ^f ^g Cf. Charles van Marrewijk: International Economics . 1st edition. Oxford University Press, New York 2007, pp. 202-204, ISBN 978-0-19-928098-8 .

↑ [1]

↑ See Ulrich Brasche: European Integration . 2nd Edition. Oldenbourg Wissenschaftsverlag, Oldenbourg 2008, p. 55, ISBN 3-486-58697-1 .

↑ These models are based on the Ricardo model (differences in technology), the Heckscher-Ohlin model (differences in factor equipment) or the Krugmann model ( Paul Krugman's New Trade Theory ).

↑ ^a ^b See Paul R. Krugman, Maurice Obstfeld: International Economics . 5th edition. Addison-Wesley Longman, Amsterdam 2001, pp. 137-139, ISBN 0-321-03387-6 .

↑ See Peter Bofinger: Grundzüge der Volkswirtschaftslehre , Munich 2003, pp. 45–64., ISBN 978-3-8273-7076-1 .

↑ Cf. Gustav Dieckheuer: Internationale Wirtschaftsbeektiven . 5th edition. Oldenbourg Wissenschaftsverlag, Oldenbourg 2001, pp. 49f., ISBN 3-486-25806-0 .

↑ ^a ^b ^c ^d ^e OECD Economic Outlook 71: Intra-industry and intra-firm trade and the internationalization of production (PDF; 133 kB) pp. 159–161 (accessed on May 1, 2009).

↑ Cf. Princeton University Press: Intra-industry trade ( page no longer available , search in web archives ) Info: The link was automatically marked as defective. Please check the link according to the instructions and then remove this notice. P. 2 (accessed on May 2, 2009)@1@ 2

↑ Another model for measuring intra-industrial trade could be the Dixit-Stiglitz model (cf. Charles van Marrewijk: International Economics . 1st edition. Oxford University Press, New York 2007, p. 204, ISBN 0-19-928098- 3 ).

↑ See Horst Siebert: Außenwirtschaft . 7th edition. Lucius & Lucius, Stuttgart 2000, pp. 121f., ISBN 3-8252-8081-0 .>

↑ Cf. Princeton University Press: Intra-industry trade ( page no longer available , search in web archives ) Info: The link was automatically marked as defective. Please check the link according to the instructions and then remove this notice. P. 3 ff. (Accessed on May 4, 2009).@1@ 2

↑ United Nations: Standard International Trade Classification (Retrieved May 4, 2009).

↑ Cf. Princeton University Press: Intra-industry trade ( page no longer available , search in web archives ) Info: The link was automatically marked as defective. Please check the link according to the instructions and then remove this notice. P. 5 f. (Accessed May 2, 2009)@1@ 2