A study on the overall trade structure and drivers of intra-industry trade in the pharmaceutical sector of India

Adrija Ganguly and Sunandan Ghosh

Journal of Economic Studies, 2025, vol. 53, issue 1, 135-156

Abstract: PurposeThe purpose of the paper is to examine the trade structure of India’s pharmaceutical sector with a focus on intra-industry trade (IIT).Design/methodology/approachThis paper starts with analysing export destinations and import sources using significant trade shares; the study calculates IIT between India and its consistent trade partners at an aggregate level and considers the problem of categorical aggregation at a disaggregate level. To determine the determinants of IIT at different levels, the Vector Error Correction model used production-related data to identify the drivers of IIT. Also, the Granger causality test was used for short-run causality.FindingsThis study examining India’s consistent trade partners from 1993 to 2023, finds long-run association and short-run causality. The results show a significant long-run association between total IIT and factors like unskilled labour share, invested capital, fuel consumption, total input and net value added. The key low-vertical IIT (LVIIT) drivers are invested capital, unskilled labour, fixed capital and total inputs. The negative long-run association between the total input and LVIIT obtained implies a rising level of total input cost, leading to a fall in IIT and LVIIT. Also, a negative association is obtained for unskilled labour and total IIT, while a positive association is obtained for LVIIT. In the short run, causality indicates that total IIT is influenced by invested capital and fuel consumption, while unskilled labour shares and total inputs drive LVIIT. Both IIT types impact invested capital, highlighting the need for policy intervention in input markets. It provides insights for improving quality trade expansion and correcting production-related factors.Originality/valueUnlike other studies on the pharmaceutical trade in India, this study analyses India’s pharmaceutical trade for a longer time period, focusing on destination-wise analysis and calculating the intra-industry trade index while taking care of the problem of categorical aggregation. Further, the study attempted to find the long-run association with production-related drivers.

Keywords: Pharmaceutical sector; Intra-industry trade; VEC (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-11-2024-0793

DOI: 10.1108/JES-11-2024-0793

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