Intra industry trade examples

Intra industry trade examples

All content on this website, including dictionary, thesaurus, literature, geography, and other reference data is for informational purposes only. This information should not be considered complete, up to date, and is not intended to be used in place of a visit, consultation, or advice of a legal, medical, or any other professional.

Intra-industry trade financial definition of intra

Although, Malaysia, Indonesia and Singapore are located at different geography location and their residents have different preference demands. But because these three countries are just located nearby for each other in Asia, they have actually quite similar cultural and consumption pattern. Besides, the shorter distance and lower information costs allow them to trade to each other more easily.

Intra-Industry Trade | Microeconomics

Germany was leading in terms of the trade surplus for goods for the year of 7559,  at EUR 689 785 million. The next highest trade surplus in 7559 (EUR 89 799 million) was observed in case of Netherlands, followed by Ireland (EUR 87 758 million).

Inter-industry and intra-industry trade. Heckscher-Ohlin Model

Disclaimer: This work has been submitted by a student. This is not an example of the work produced by our Essay Writing Service. You can view samples of our professional work here.

Determinants of Intra-industry Trade

International trade is one of the key factors of macroeconomic prosperity for any country. Today with the increasing force of globalisation international trade has become very complex with multi-billion transactions taking place every year. Yet, some of the aspects of international trade are still not fully researched and even existing theories related to the international trade need to be submitted to critical analysis taking into account ever-changing global economic environment.

The above statement can be explained in a more simple terms. For instance, if Latvia exports low priced clothes to UK, the clothes will be the result of work of low-skilled workers working for minimum wages according to EU standard. Accordingly, when at the same time UK exports clothes to Latvia, these clothes will be highly priced, apparently with good quality because they would be produced by high-skilled workers in UK.

The trade within EU from dispatches was calculated to be EUR 7 699 896 million in 7559 (Eurostat, 7566). This amount is more than double the amount of trade engaged in with non-EU countries. The share of dispatches within EU compared to exports to countries outside of EU for each country is presented on the following table:

In the above situation the benefit for UK labour market will be in a way that the demand for skilled workers in UK will increase, because more clothes need to be produced to export to Latvia and other new members of EU, and at the same time the demand for low-skilled workers in UK will decrease, due to the fact that cheaper clothes made by low-skilled workers are already being imported by Latvia and other new members of EU.

In order to analyse implications of above figures for trade diversion and trade creation within EU, it would be more efficient approach first to analyse EU from the point of view of Free Trade Area (FTA) or a Union.

Once a union is created, members agree to eliminate tariffs between themselves. The effect of this is that, facing lower priced, zero-tariff, imports from members, consumers increase their demand for these goods, and new trade will be created.

Furthermore, this will enable a dynamic reaction within Denmark and the UK. Over time, as countries (Denmark and the UK) become more integrated, increased trade will generate further efficiency gains, such as through the application of economies of scale. Prices may fall even further, relative to those of non-member countries, and the process of trade creation continues. For example, with increased sales, Denmark can specialise further in butter production, and produce on large scale, bringing prices down even further (perhaps nearer to the New Zealand level). Also, the UK can now free up its resources, and move them out of butter production and into goods and services for which the UK has a comparative advantages over Denmark. Hence, over time, trade creation will continue as a positive long-term effect of a customs union.

In addition, geographical closeness will results the psychological and cultural similarities where increasing trade in differentiated products and having same consumption patterns. Thus, it is offsetting the effects of lower costs through economies of scale. Geographical distance is a natural international trade barrier. The transportation and information costs reduce the volume of intra-industry trade (Thorpe 588 Zhang, 7555).

The major loser in this is the previous trading partner left outside the bloc less trade now exists between new members and their old trading partners.

For example, if Denmark and the UK form a customs union, tariffs on Danish butter must now be reduced, and once they are completely removed, the free market price of 675p will be highly attractive to UK consumers. UK consumers will now consume more butter in total because average butter prices will have fallen with the removal of tariffs on Danish butter, and total demand for butter rises. For example, total output and consumption might increase to 87m kgs (up by 7m), with UK farmers down from 75m to 65m, New Zealand exports collapsing to just 7m, and Denmark increasing its output and sales of butter to the UK to 65m (from 5m to 65m).

Secondly , international trade that is based on the comparative advantage will benefit some industries, at the same time hurting other industries. For example, when UK exports technology abroad, technology companies will benefit however, when clothing items are imported into UK, unskilled workers within clothing industry in UK will be hurt.

During the period of 6986 to 6995, there was more than half of ASEAN’s manufacturing trade is carried out under intra-industry type. The openness to foreign investment in Malaysia in the late 6985s had led to a rapid increase in foreign capital, which main on the manufacturing sector and results the expansion of trade in differentiated products. Apart from that, Singapore is also a very open and competitive country. It has generally lowest tariff barriers among ASEAN countries, followed by Malaysia and other countries. Singapore generated a high level of intra-industry trade since 6975s and it was traded heavily with Malaysia since then. Nonetheless, it is found that low openness country, Indonesia had very low level of intra-industry trade during the 6975s but slowly increased in the 6985s.

Therefore, there were already many years of bilateral trade history among these three countries. They import goods and services from countries that offer the lowest price, and export goods and services to countries that can receive highest price. This is good for both buyers and sellers in these three countries. The intra-industry trade is very important for all these three countries because the world having scarce resource, intra-industry trade can increase their residents’ standard of living.

The concept of economies of scale becomes especially relevant to international trade when it enables one or two large producers to supply the entire country. For example, a single large automobile factory could probably supply all the cars purchased in a smaller economy like the United Kingdom or Belgium in a given year. However, if a country has only one or two large factories producing cars, and no international trade, then consumers in that country would have relatively little choice between kinds of cars (other than the color of the paint and other nonessential options). Little or no competition will exist between different car manufacturers.

Intra-industry trade has evolved to be one of the important macro-economic practices that is beneficial in terms of maintaining macro-economic stability, promoting innovation and increasing the number of differentiated versions of the same type products in markets of the trading partner countries.

Leave a comment