An analysis of country specific determinants of vertical and horizontal intra-industry trade in the food processing sector of India
by Poornima Varma
International Journal of Trade and Global Markets (IJTGM), Vol. 8, No. 4, 2015

Abstract: Intra-Industry Trade (IIT) has become a widespread phenomenon with a growing role in international trade, though agricultural trade is usually neglected in empirical works. This is especially true for India, where the food processing sector is showing potential and an expansion in trade. The present study therefore analyses the country specific determinants of two types of IIT - vertical IIT (VIIT) and horizontal IIT (HIIT) - by applying both static - Panel-Corrected Standard Errors (PCSE) - and dynamic Generalised Methods of Moments System (GMM-SYS) panel data techniques. The analysis confirmed the theoretical notions that the differences in tastes and preferences promote greater VIIT, whereas the differences lead to less HIIT between India and partner countries. Similarities in capital formation and GDP are found to be equally important for both VIIT and HIIT. The study also confirmed that higher the economic size, higher the VIIT and HIIT between the countries. The results also suggest that FTA is important in promoting IIT, especially the VIIT.

Online publication date: Tue, 03-Nov-2015

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