Definition of intra-industry trade index

Intra-industry trade index: an index used to measure the extent of intra-industry trade in an industry. The formula for this index is:

T=1-|X-M|/(X+M)

The formula: X and M represent the exports and imports of a particular industry or a class of commodities, and take the absolute value of X-M. The value of T ranges from 0 to 1.

The assumptions of the theory of the index of intra-industry trade is that: the analysis of the index is basically from a static point of view; the analysis is not based on the perfectly competitive (monopolistic competition) market, and the analysis is based on the non-perfectly competitive (monopolistic competition) market, and the analysis is based on the non-perfectly competitive (monopolistic competition) market. The analysis is carried out; the analysis is not based on the perfectly competitive (monopolistic competition) market, but on the premise of non-perfectly competitive market (the premise of the past trade index theory is mostly a perfectly competitive market); there is a gain of scale in the economy; in the analysis of the demand is not the same as the same case to be taken into account. As can be seen from these assumed premises, the starting point of the intra-industry trade index theory is quite different from other trade index theories.

(1) Product Difference Theory

The same kind of products are those products which can be substituted for each other in terms of consumption and input similar or similar factors of production in terms of production, which include homogeneous products and difference products. Homogeneous products are products that are identical in nature and thus can be completely substituted for each other, such as the same fruits, bricks and so on. Most of these goods in general belong to the object of inter-industry trade, but due to different market locations, different market time, etc., there is also a certain degree of intra-industry trade phenomenon. Product differentiation or difference products refers to the physical form from the product quality, performance, shape, design, specifications, trademarks and packaging and other aspects of the difference.

1) Intra-industry trade in homogeneous products

The buying and selling of homogeneous products in international trade often occurs for the following reasons:

First, many raw materials (such as sand, cement, etc.) have a low unit value and a relatively high cost of transportation, and consumers should be as close as possible to the place of supply of the raw materials to obtain them. So a country may import and export bulk raw materials at the same time. This is the case, for example, when China exports cement in the northeast and imports it in southern China.

Secondly, some countries and regions (such as Singapore, Hong Kong) to carry out a large number of re-export trade and re-export trade, many of its imports and exports of goods in the form of nature basically the same. In this case, similar products will be reflected in the re-exporting country's import items and export items at the same time, then the formation of statistical intra-industry trade.

Third, because some products (such as fruits and vegetables) have seasonal characteristics, a country will sometimes import and sometimes export such goods. For example, some countries in Europe in order to "cut peaks and fill valleys" between the formation of the import and export of electricity.

Fourth, price distortions caused by government intervention, especially mutual dumping, will make a country in the imports at the same time, in order to capture the market of other countries and export the same product, thus forming intra-industry trade. Also when there are export tax rebates and import preferences, domestic firms are forced to export in order to get tax rebates in order to compete with imported goods, and then import in order to take advantage of import preferences, resulting in intra-industry trade.

Fifth, for the sake of economic cooperation or special technical conditions, some countries also trade in certain homogeneous products. Such as the banking and insurance industries in various countries to go out and bring in. For example, China attracts foreign banks to invest in China, but then invests in other countries of the world to establish branches.

Sixth, the internal trade of multinational corporations will also form intra-industry trade, because the products of the same commodity and intermediate products and parts are mostly categorized into the same group of products, thus forming intra-industry trade.

These homogeneous product trades can all still be accounted for by the Herrera doctrine as long as the analysis of one type of factor, such as transportation costs, is added. Therefore, the analysis of differential product trade is the main content of the theory of intra-industry trade index.

②Differentiated products of intra-industry trade

The data show that most of the intra-industry trade occurs between differentiated products. In the manufacturing industry, intra-industry trade in goods is significantly higher in machinery, pharmaceuticals and means of transportation. Differentiated products belonging to the same broad product category have a high share in the modern economy. In the automobile industry, Ford is different from Honda, Toyota or Chevrolet. Thus, two-way trade flows also occur between different varieties of products in a broad category.

International product differentiation is the basis for the occurrence of intra-industry trade, which is reflected in three aspects of the horizontal differences, technological differences and vertical differences in products:

a. Horizontal differences refer to the differences in the way product characteristics are combined. In a group of products, all products have certain *** with the same essential features, that is, the core features, these features of different combinations of ways to determine the differences in the product, the same difference within a series of different specifications of the product can be seen in the existence of horizontal differences. Such as tobacco, perfume, cosmetics, clothing and so on. Most of the intra-industry trade in such products is related to differences in consumer preferences. Differences in brand names, specifications, services and other characteristics of the difference in products, but also because of the difference in the product of this incomplete substitutability makes the people of the same kind of product also produces a different demand. In the era of people's increasing pursuit of quality of life, under the role of scientific and technological progress, manufacturers are able to provide more and more differentiated products, but it is difficult for a country's domestic manufacturers to satisfy all the needs of domestic consumers. If a country's consumers develop a demand for a particular feature of a foreign product, it may export and import similar products.

b. Technological differences are differences brought about by the emergence of new products. Intra-industry trade occurs when similar products at different stages of the product life cycle (such as different grades of household appliances) are produced in different types of countries and then traded for import and export. In the example of the United States, Europe and other developing countries mentioned in the product life cycle index theory we talked about in the first section of this chapter, if Europe starts to produce the new product, and the United States produces the product to form the difference, then in the whole process of the cycle there may be intra-industry trade between Europe and the United States or Europe import from the United States at the same time to the developing countries of the export of the phenomenon of trade.

c. Vertical difference refers to the difference in product quality, in order to capture the market, people need to continuously improve the quality of products, and a country's consumers, not all of them can not pursue expensive high-quality products, therefore, in the export of high-quality products at the same time will often be imported from other countries of some low- and medium-quality products of the same kind, thus generating intra-industry trade. In the demand preference similarity theory, we talk about a country's manufacturers will produce its domestic representative demand for products, then in the country's domestic demand structure at both ends of the product may be solved through imports.

All three of these cases share the overlap in terms of economies of scale that exist from a supply perspective and demand preferences that exist from a demand perspective. We note, of course, that intra-industry trade based on product differences is based on imperfect competition (traditional trade index theory generally assumes that markets are perfectly competitive).

(2) Economy of Scale Theory

Large-scale production can make full use of natural resources, transportation and communication facilities and other good environment, and improve the utilization rate of plant and equipment and labor productivity, so as to achieve the purpose of reducing costs.

In the 1970s, Gray and Davis et al. conducted an empirical study of intra-industry trade among developed countries, from which they found that intra-industry trade occurs mainly in countries with similar factor endowments, and the reason for this is the interplay between economies of scale and product differences.

This is because, on the one hand, economies of scale have led to the emergence of intra-industry specialization in various countries, thus enabling the rapid development of intra-industry trade based on intra-industry specialization; on the other hand, there is a close link between economies of scale and product differences. It is due to the role of economies of scale, so that the production of similar products of many enterprises winners and losers, and finally by one or a few large manufacturers monopolize the production of a certain product, these enterprises gradually become exporters.

①Internal Economies of Scale and International Trade

Generally, the realization of internal economies of scale depends on the increase in the output of the manufacturers in an industry or trade by expanding their own scale. A country enjoys the advantage of economies of scale, its cost is to reduce with the increase in output, and thus get the advantage of production. So that its products in trade activities in the competitive ability is bound to greatly improve, to occupy the trade advantage, to obtain the benefits of trade. Specifically, we assume that before participating in international trade, the monopoly competitive enterprises face only domestic demand, the demand is limited. After participating in international trade, foreign demand increases, thus total demand increases, and the production of enterprises expands accordingly. In the short run, the sudden expansion of demand causes the average cost of the firm to fall faster than the price of the product, creating excess profits. The excess profit attracts more domestic firms to enter the industry. The products produced by the new entrants are highly substitutable for those of the original firms, causing market demand for the original firms to fall, so the excess profits disappear in the long run. However, due to the enterprise behind the trade to face the more elastic demand, so that it obtains a lower long-term average cost, thus obtaining a comparative advantage, the formation of trade occurs on the basis of. It can be seen that economies of scale are both the basis for the formation of trade, while trade also promotes the realization of economies of scale.

In industries where economies of scale are important, international trade allows consumers to enjoy a wider variety of products than in closed economies. Because economies of scale mean that firms can only produce a limited variety of products within a country, if imports are allowed, a wider variety of products can be purchased on the domestic market, which is a sign of increased welfare.

Economies of scale are even more important for industries with large cost outlays, such as research and development expenses; without international trade, such industries may not survive. Research and development expenses can be described as a fixed cost expense that decreases per unit of product as production increases. If such products are confined to the domestic market, the fixed cost per unit of product is higher due to limited production, and thus the average cost is higher, making it difficult for manufacturers to realize economies of scale or even to recover the research and development costs invested. If international trade is allowed so that products can be sold on the world market, production will increase and manufacturers will be able to realize production under economies of scale.

②External economies of scale and international trade

External economies of scale mainly come from the increase in the number of firms in the industry caused by the increase in the size of the industry. External economies of scale will also bring about a reduction in the cost of the industry. Under external economies of scale, the cost advantage resulting from external economies can make the country an exporter of goods. Perhaps the establishment of an export industry is accidental, but once a country establishes a scale of production that is larger than that of other countries, the country gains more cost advantages. Thus, even if other countries have a greater comparative advantage, if that country has first developed the industry to a certain scale, it is unlikely that other countries will become exporters of that product. In the presence of external economies of scale, the pattern of trade cannot be determined on the basis of comparative advantage, and strong external economies can entrench existing patterns of trade, which may lead to a country being "locked in" to a pattern of specialization without comparative advantage, and may even lead to the country suffering losses from international trade.

(3) Similarity (or overlap) of demand preferences

Swedish economist Linde put forward the theory of preference similarity index. The preference similarity index theory analyzes the causes of international trade mainly from the perspective of demand, and argues that intra-industry trade is caused by similar demand preferences.

The basic ideas include: international trade is an extension of domestic trade, the products consumed or invested in the production of their own country can become potential exports; the more similar the consumer demand preferences of the two countries, the easier it is for the products of one country to penetrate the market of the other country, and thus the greater the volume of trade between these two countries.

(4) The level of economic development is an important constraint on intra-industry trade

Western economists believe that the higher the level of economic development, the larger the scale of production of differentiated products within the industrial sector, the more developed the division of labor within the industrial sector, thus forming a supply market for differentiated products. At the same time, the higher the level of economic development, the higher the level of per capita income, the higher per capita income layer on the consumer's needs will become more complex, more diversified, present in addition to the strong demand for differentiated products, thus forming a differentiated products of the consumer market. When the income level between the two countries tends to equal the process, the demand structure between the two countries also tends to be close, ultimately leading to the occurrence of intra-industry trade. Linde in his proposed demand preference similarity index theory pointed out that the more similar the income level and domestic demand structure between the trading countries, the stronger the tendency to trade with each other The trade competition index refers to the ratio of a country's net export value of a certain product to the value of imports and exports of that product combined. If the ratio is positive, it indicates that it is a net exporter, and if the ratio is closer to 1, it indicates that the stronger the international competitiveness.

Intra-industry trade index: an index used to measure the extent of intra-industry trade in an industry. The formula for calculating this index is:

T=1-|X-M|/(X+M)

The formula: X and M represent the exports and imports of a particular industry or a class of commodities, respectively, and take the absolute value of X-M. The value of T ranges from 0 to 1. The index of intra-industry trade, and the value of its increase, reflects the ability of a country to quickly adjust its production when faced with a wide range of international markets. The ability of production, it can be seen, improve the level of intra-industry trade, is an important means for developing countries to improve the competitiveness of foreign trade, but whether any one type of intra-industry trade will be effective in improving the competitiveness of a country's foreign trade is a debatable issue.

1, intra-industry trade and foreign trade competitiveness generated by differentiated products

For our country, at present, there is a certain gap between the level of economic development, the level of income of the population, the level of technology and the developed countries, so the intra-industry trade of differentiated products is mainly generated by the vertically differentiated products and the technologically differentiated products, and we know that, as a technologically latecomer in the product life cycle of the country chain, we can only wait for a certain product was launched by the advanced industrial countries, to be technologically mature, production is gradually standardized before the use of national labor resources advantage for production, when the product has long been from technology-intensive to labor-intensive. And the production of this kind of product technology has long since ceased to have a monopoly advantage. Standardized product production of technologically advanced countries only by virtue of their own labor advantages in trade to get "a share of the pie" (less profit), and at this time, those advanced industrial countries no longer produce the product, instead of importing from these countries.

They invested a lot of money in the research and development of new products, expecting to make high profits on the new products introduced. From this point of view, technological differences in products to promote intra-industry trade to a certain extent conducive to solving the problem of employment of our labor force, improve the existing level of industrial technology, increase the benefits of trade, but can not make our country to obtain monopoly technological advantage, and therefore in improving the competitiveness of China's foreign trade has a limited role. Similarly, in the intra-industry trade of vertically differentiated products, most of the low-income residents of high-income countries generate import demand for low-end products of the same kind in our country, while our high-income residents generate import demand for high-end products of the same kind in high-income countries. Therefore, this type of intra-industry trade is still pulling the export of low value-added products with low technological content in China, which is not very beneficial to improve the structure of China's exports and the competitiveness of China's foreign trade.

2, the foreign direct investment of multinational corporations generated by intra-industry trade and China's foreign trade competitiveness

As mentioned earlier, multinational corporations in developing countries like China tend to take the vertical integration of investment. That is, the vertical division of labor between the headquarters and overseas factories, in order to maintain technological advantage, transnational corporations to the industrial chain of high value-added links firmly in their own hands, while the host country can only be engaged in the industrial chain of low value-added links in the production activities. In trade practice, often reflected in the host country from the home country to import parts and components and intermediate products, processed and exported to the parent company and other subsidiaries. This kind of intra-industry trade can not effectively improve a country's foreign trade competitiveness.

Because in the low technology content of the industrial chain, China can only disguise a little processing fee. This is highlighted in China is the rapid increase in the proportion of processing trade. In the short term, processing trade can certainly increase China's trade interests, but in the long term, this form of trade between the two ends of the outside, the driving effect on the front and rear industries is very small, the promotion of the upgrading of the industrial structure of developing countries is not much. However, in the case of horizontal integration investment by TNCs, as mentioned earlier, since the host country is not engaged in the production of low value-added links in the industrial chain, but in the production of the whole industrial chain, the host country will be able to obtain economies of scale in this parallel division of labor, and to absorb advanced production technology and management experience from the home country, which will play a positive role in promoting the upgrading of the host country's industry. Therefore, compared with vertically integrated investment, intra-industry trade caused by horizontally integrated investment can be taken as a sign of the improvement of a country's foreign trade competitiveness.

3. Expanding horizontal intra-industry trade to improve China's foreign trade competitiveness

Actively carry out industrial upgrading, pay attention to the development of high and new technology, and combine the two factors of the development of high and new technology and the advantage of labor resources well. China and the developed countries in the level of intra-industry trade has not developed, the fundamental reason is that China's high-tech development is relatively lagging behind, and can not with the developed countries in the high technology content of products to form a horizontal division of labor. This is also the reason why multinational corporations do not invest in horizontal integration in China. Compared with developed countries, our competitive advantage is not in the level of technology, but in the abundant labor resources.

Therefore, consistently, our traditional trade pattern is based on inter-industry trade, i.e., the division of labor on the basis of resource endowment, and our exports of labor-intensive products and imports of technology-intensive products from developed countries. Admittedly, in order to solve the problem of employment pressure, we must develop labor-intensive industries. At this stage, our industrial structure still needs to be predominantly labor-intensive. But in the long run, it is imperative to devote ourselves to the development of high-tech industries and the formation of monopolistic technological advantages in certain fields. Because only our country's technological level has made great progress, we can with the developed countries level type intra-industry trade.

Improve the commodity structure and realize the upgrading of intra-industry trade. Using the concept of Channary and Taylor's three-phase division of industrial development to describe the existing level of industrial development in China, our industry is in the transition from the early stage to the middle stage, with a combination of the characteristics of the development to the later stage. The constraints of this industrial structure on the development of horizontal intra-industry trade are mainly manifested in the low level of commodity structure.

According to the statistics of the relevant departments, although the proportion of manufactured goods in the total exports of commodities has far exceeded the proportion of primary products, but the proportion of high-value-added, high-technology, deep-processing of heavy chemical industrial products, mechanical and electrical products in the manufactured goods is very small, while the rough processing of low-value-added labor-intensive products are mostly. It can be seen that this kind of export commodity structure is far from the product characteristics required by horizontal intra-industry trade. To improve China's existing export commodity structure, it is necessary to catch up in certain strategic areas, the formation of China's unique advantages of high-tech industries, and at the same time to use high-tech transformation of traditional labor-intensive industries, improve production technology, improve the process, the realization of product quality and technology focus on the connotative expansion of the industrial structure in line with the level of intra-industry trade requirements, and ultimately improve the international competitiveness of China's export products. The international competitiveness of China's export products will ultimately be improved.