Inter Industry and Intra Industry Trade Essay Example | Topics and Well Written Essays - 1750 words

Inter Industry and Intra Industry Trade - Essay Example on, and import goods to countries they lack their own production, or where products can be manufactured with poor cost-effectiveness, owing to factor scarcity, intensively used for goods production. Under such circumstances, a country does not generally export and import the same product type. Inter-industry trade is in direct contrast to intra-industry trade that is a result of ‘imperfect’ competition between nations having identical factor endowments (Falvey and Kierkowski, 1987, 143-161). Examples of intra-industry trade include technology, beverages, minerals and automobiles. As per the definitions provided by OECD, intra-industry trade can be viewed through intra-industry trade measurements: a) â€Å"Trade in similar products (â€Å"horizontal trade†) with differentiated varieties (e.g. cars of a similar class and price range); b) Trade in â€Å"vertically differentiated† products distinguished by quality and price (e.g. exports of high-quality clothi ng and imports of lower-quality clothing)† (OECD, Glossary of Statistical terms, 2007). There are two different forms of intra-industry trade: Horizontal intra-industry trade: this comprises of simultaneous imports and exports of products categorised within an identical industry, and at an identical processing stage, therefore, based primarily on product differentiation, as for example, Korea’s export and import of cellular phones at the same time, at a same processing stage (Grubel, and Lloyd, 1975). Vertical intra-industry trade: This comprises of imports and exports of products at the same time within the same industry sector, but at a different processing phase. It is based on a growing ability to arrange for production fragmentation into various stages, each occurring at different places, and taking advantage... This report approves that countries export products where factors can be intensively used for goods production, and import goods to countries they lack their own production, or where products can be manufactured with poor cost-effectiveness, owing to factor scarcity, intensively used for goods production. Under such circumstances, a country does not generally export and import the same product type. Inter-industry trade is in direct contrast to intra-industry trade that is a result of ‘imperfect’ competition between nations having identical factor endowments. This report makes a conclusion that currently under increased instances of globalisation, intra-industry trade has turned into an essential part of global macro-economic activities, which is beneficial as regards bringing in stability at a macro-economic level, increasing the number of products of the same type within the market giving a consumer more choices and advocating innovation. This trade is primarily based on the advantage where it allows consumers to have at their disposal a larger range of products at cheaper rates, while allowing producers to acquire economies of scale in goods manufacture by giving them an access to a wider global market. With an overall rise in output, fixed costs are disseminated over a wide range of units, thus decreasing the corporation’s average production cost. Therefore, despite various debates on its rightful place within the realms of economic theories, intra-industry trade occupies an important position within the realms of modern intern ational trade.