Ch_5 Intraindustry - Intraindustry vs Interindustry...

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1 Intraindustry Chapter 5 Tutional BBA International Economics. 2 Intraindustry vs Interindustry Intraindustry trade occurs when a country exports and imports goods within the same industry or product group. • Using the factor-proportions theory, a country that imports and exports the same good has a comparative advantage and disadvantage in the same goods? • This does not make sense 3 Defining Intraindustry Trade • Intraindustry is two-way trade in the same good. • The easiest way to measure intraindustry trade us by means of intraindustry trade index. intraindustry trade index. = Suppose that the U.S. only imports $100,000 of cloth from India, export nothing. intraindustry trade index. = If the U.S. exports $50,000 in food from India and imports $50,000 in food from India. intraindustry trade index. = 0 1 No intraindusrty 100% intraindustry 4 The major shortcoming of using this index to measure the amount of intraindustry is that how we define the indusry or product group. For example, U.S import $100,000 of men’s pant U.S. export $100,000 of women’s pant. The general principle is that the more broadly one define the industry, the higher the Intra index.
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5 Intraindustry trade in Homogeneous Products Homogenous products: Ex cloth and machines produced in India are identical to those produced in the U.S. Intraindustry trade in homogenous goods btw countries can occur as a result of: 1. Cost of transportation. Ex Cement 2. Homogenous service. Ex Banking service, shipping service, insurance
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Ch_5 Intraindustry - Intraindustry vs Interindustry...

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