Which Factors Influence India’s Bilateral Intra-Industry Trade? Cross-Country Empirical Estimates

Sakshi Aggarwal () and Debashis Chakraborty ()
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Sakshi Aggarwal: Indian Institute of Foreign Trade (IIFT)

No 2260, Working Papers from Indian Institute of Foreign Trade

Abstract: India has undertaken a series of industrial and trade policy reforms since 2001. Among the key industrial policies introduced, the ‘Make-in-India’ and ‘Atmanirbhar Bharat Abhiyan’ initiatives are worth mention, while various trade facilitation measures, tariff reforms, deepening participation into preferential agreements and easing of FDI norms etc. can be cited as the major trade policy related reforms. The stream of reforms helped the country to witness a rise in simultaneous export and import within same product groups over the last two decades, which is termed as intra-industry trade (IIT) in the literature. Given the rising trend in IIT level, the present paper intends to analyse the key factors that influence the aggregate bilateral IIT between India and major trading partners over 2001-19 in a panel data framework. The empirical results indicate that India’s IIT with major trade partners is positively influenced by difference in income and technology levels, product differentiation, difference in manufacturing orientation and product standards, enhanced trade facilitation, while being negatively influenced by geographical distance. Given the positive relationship between difference in technology level and product standards, it can be argued that India’s IIT with the partner countries is majorly Vertical Intra-industry Trade (VIIT) type in nature. In light of recent preferential trade initiatives of the country, it is concluded that India needs to focus on domestic efficiency enhancing measures as well as improving trade facilitation channels.

Keywords: Intra-Industry Trade; LPI; EPI; Panel Data; India (search for similar items in EconPapers)
JEL-codes: F13 F14 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2022
New Economics Papers: this item is included in nep-int
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