Which Factors Influence India’s Intra-Industry Trade? Empirical Findings for Select Sectors

Abstract

The growing intra-sectoral trade among countries, reflected through simultaneous export and import in parts and components, intermediate products and final goods, is termed intra-industry trade (IIT). Over the past two decades, the multilateral tariff reforms under WTO and deepening of the bilateral preferences through the regional trade agreements (RTAs) have enhanced India’s IIT at both aggregate and sectoral levels. The ‘Make-in-India’ initiative, introduced in 2014 to further deepen India’s growing integration with the Asian international production networks (IPNs) across manufacturing sectors, is also enhancing sectoral IITs. The present article examines the patterns and determinants of India’s bilateral IIT in seven sectors with 25 major trading partners during 2001–2015, through a panel data analysis. The empirical results indicate that Vertical Intra-industry Trade (VIIT), efficiency, trade facilitation reforms, trade agreements and product differentiation dominate India’s IIT pattern at sectoral level. The analysis underlines the need for Indian firms to move up the value chain through innovation and skill upgradation.