Intra-industry trade is a way that countries frequently use in today’s international trade. As countries use this way, their share in world trade increases, leading to competition in market share among countries. In our study, we give place to the reasons why countries want to import and export the same industrial products, which factors are affected, which countries and which products use this way. In intra-industry trade we show mostly developed countries, more usually in homogeneous products are using. Especially between the US and Japan autos industry,mostly technological devices take place in intra-industry trade. But we observed that homogeneous product is also using in intra-industry trade and all countries took advantage of it. Thanks to intra-industry trade, countries that used way increase their trade volumes all around the world.
INTRODUCTION TO INTRA-INDUSTRY TRADE.
Trade is the action of buying and selling goods and services.1 Countries that cannot produce a product because of their assets and natural resources are looking for other countries that can produce that. Thanks to trade, countries don’t have to waste their time and money for producing and they will start importing from other countries that can produce it. After that, many theories began to emerge and one of the theories of that is Hecksher-Ohlin Theory. According to Eli Hecksher and Bertil Ohlin, nation will export the product which have relatively abundant resource, and import the product which have relatively scarce resource. But, in a way of economies of scale and product differentiation this theory was unsufficient and intra-industry approach could explained that. Intra-industry trade refers to the exchange of similar products belonging to the same industry. The term is usually applied to international trade, where the same types of goods or services are both imported and exported simultaneoulsy.2
REASONS WHY NATIONS USE INTRA-INDUSTRY TRADE.
You may think, why nation use intra-industry trade while exporting and importing same product. Of course, without any benefit, nations will not be eager to use intra-industry trade. So let’s have a look benefits;
First motive is product differentiation. Nations that use intra-industry trade are looking for little differences between them. Yes, it is same product but little differences on same products affect nations to do that and more importantly affect demand. And also, a nation may export and import the same product because of transportation costs.3 Countries that are too far away from each other, to minimize transportation costs, tend to use that because this way will be less expensive for them and more profitable.
Other factor is learning division of labor, import from other countries may lead learning from their products. For example, the USA and Japan, both produce cars. Although it looks like same car, it’s not. Because both country used different components to produce it, they check up on their car and learn from each other and they renewed their products against theirselves. Moreover, dynamic economies of scale is important factor. When the country specializes in one type of product, there will be a reduction in unit costs and the country will produce more of the same goods and export more, as well as import different varieties of the same product more cheaply.4Last but not least, nations which impot and export same product, are using the components in different product. For example; two nations trading iron doesn’t mean they use iron in same product.So,we can say that, nations can benefit from each other and continue to use intra-industry trade.
FACTORS AFFECTING INTRA-INDUSTRY TRADE.
We’ve seen why intra-industry trade used by nations, now we will focusing factors that affecting intra-industry trade.
1) Income Per Capita Level: According to Linder, intra-industry trade changes by income per capita. We know intra-industry trade is exporting and importing same product so we can also think as nations that have same level of income per capita increase intra-industry trade because of equal level and so probably equal assets and resources.
2) Economic Magnitude: According to Bergstrand, as the disparity between economic magnitudes grows, so will the amount of intra-industrial trade.
3) Factor Endowment Ratio: According to Helpman and Krugman, there is positive relationship between income per capita and factor endowment. As income per capita increase, countries factor endowment will be changing through labor abundant to capital abundant. According to Helpman and Krugman if two countries that have different endowment try to do intra-industry trade, will probably fail.
4) Level Of Development: Intra-industry trade between developed countries and developing countries will be differ each other. As the level of development of countries increases, the share of intra-industry trade increases.
5)Trade Liberalization, Openness: Intra-industry trade increases as the economy’s openness increases. If countries liberalize theirselves in terms of trade, intra-industry trade also increases and so competitiveness increase as well.
- PRODUCTS AND COUNTRIES IN INTRA-INDUSTRY TRADE.
Intra-industry trade that is the reason of structural transformation, usually developed countries which is advanced industrial nations (actually technology developed countries) have used intra-industry between each other and usually on same resource endowments. According to 15th Edition of International Economics book; “Intra-industry trade involves flows of goods with similar factor requirements.
Nations that are net expoters of manufactured goods embodying sophisticated technology also purchase such goods from other nations. Most of intra-industry trade is conducted among industrial countries, especially those in Western Europe, whose resources endowments are similar.”5 When the developing countries begin to use the intra-industry trade so, ındustrial competition is increasing. Developed countries using intra-industry trade for instance; most of the European countries, far east countries (especially Japan, China, South Korea), the US, Canada and Mexico. The purpose of those countries using intra-industry trade, “the first one is the division of labor leads to learning, innovation and unique skills and the second one is economies of scale between countries.”6
It has been seen that trade product differentiation is the main reason for intra-industry trade and little differences affect consumer tastes and preferences. Moreover the products which is homogeneous products are also main products that using in intra-industry trade. For instance; in commodities market; vegetables, fruits, grains, oils, metals, energy goods etc.
INTRA-INDUSTRY TRADE BETWEEN JAPAN AND US.
Between 1986 and 1991, we see that more than half of Japan’s total multi-faceted trade and the growth in trade with the US are all the result of intra-industry trade growth.7Intra-industry trade between Japan and the United States can be observed in many sectors but the most important sectors which using in intra-industry trade are the technology and automotive sectors. As an example, we can see the leading computer brands and well-established car manufacturers, Toyota is a very good example of this, Toyota is the leading automotive manufacturer in the US market and there is a huge demand for toyota in the USmarket.
The United States was the major producer of the automobile industry starting from the Henry Ford’s invention of massproduction in 1913. Then, the lean production led by Japanese company Toyota in 1970’s displaced with Ford.8Thanks to intra-industry trade, the UScan both respond to the demand in its own market and offer its car manufacturers the opportunity to compare their vehicles with Toyota. Intra-industrial trade between Japan and the United States has been progressing from the 1980s to the present. As can be seen in the table, Japan’s export value to Japan in 1990 was 14.5 and in 1999 it reached 28.6; USexports to Japan increased from 23.1 to 27.7. The US is observed to rise more slowly than Japan, Japan is superior to the US in the rival market.
We’ve concluded that intra-industry trade has gained a great place in international trade. According to our studies, it is seen that countries use this path especially in product differentiation, economies of scale and competition. It has been sight that income per capita, development levels and factor endowment of countries are the main influential factors. It is observed that mostly homogeneous products and specialized products are used and mostly developed countries used it with other developed countries. Intra-industry trade, especially between the US and Japan, is seen in competition in many sectors but especially in automotive sector. By using intra-industry, countries reach higher trade volume and growth. And as a result, the growth rate of Japan in the US market since 1980’s was observed to be greater than the growth rate of the US market in Japan.