Introduction economies of same commodities is known

Introduction

Globalization leads to success in economics.
One economy gets mutual benefits from another economy. Asian countries enjoy
the benefits of western countries technology as well as west enjoys Asian
commodities. This is the millennium of information that squeezed out the
distance and time factors by fast means of communications and transport. This
combination of economies and societies makes the flow of capital, commodities,
ideas and people fast and easy. Trade liberalization is one of the major
factors of the spread of globalization. Developed economies of the world are
certainly benefited by globalization. The top beneficiaries of globalization
are America and other leading nations of Europe.

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Globalization is at its maturity; it is not
possible for any nation in world to produce fully all parts of a product for
trade by itself so country desires goods from other country for its consumers.
For attaining this function, trade happens between economies and industries who
are making the same kind of products. This trade between economies of same
commodities is known as Intra-industry
trade (IIT). The top industrial countries import unrefined material from
the arising countries and export semi-finished & finished commodities to
them or trade between same kind of commodities.

IIT share in the total trade among developed
countries is quite significant and approximately it’s rising by 5 % annually.
There are less evidences of IIT in trade relations between developed and
developing countries but the inter-industry trade between countries are highly
observed.  Some studies find the presence
of IIT in trade between developing countries Willmore (1972).

Many empirical studies have being paying
attention on Intra-industry trade between leading economies.Intra-industry
trade was first observed in the 1960s by Verdoorn (1960), Balassa (1966), the
authors realized the revolution in economics, there was specialization within
industries and two-way international trade. These authors became aware that
certain developed countries exported and imported in the same product
categories. This phenomenon occurred in the years following of European
Economic Community (EEC).

To
promote the regional trade Pakistan adopted commercial policy. Like other
developing economies Pakistan was also followed import-substitution policy for
industrialization that was highly supported by high tariff rates, import quotas
and overvaluation of exchange rate.

 

Literature Review:

International
trade mostly explains by the Heckscher-Ohlin(HO) model, which predicts that
countries exports commodities that uses its abundant factors intensively and
import commodities that use less abundant factors intensively. According to HO
model for similar products countries trade less compare to the products of
different category. The IIT literature began in 1960s when Balassa (1966)
analyzed the trade within the industries of customs union in Europe.

The
basic structure of horizontal IIT models is that products are not
differentiated by the quality, but the similar features preferred by consumers.
In vertical IIT models, the quality is directly related to the capital-labor
ratio. A capital-rich country produces higher-quality products while a labor-rich
country produce lower-quality products.

Jambor
(2014) used the data from 1999-2010 to analyze agri-food intra-industry trade
(IIT) between New Member states (NMS) and EU-27,IIT share of EU-27 increased
over the time and it seems NMS export low quality products to EU-27.The Author
apply different models shows that similar factor endowment increase the trade
of homogenous products as  well as
quality-di?erentiated agri-food products. Economy size related in IIT, different
size economies have higher share in both Horizontal Intra-industry Trade (HIIT)
and Vertical Intra-industry trade (VIIT) than those similar economies. The
article results also suggest that agri-food IIT with NMS has positive impact on
HIIT and VIIT.

Greenaway
& C.Hine (1990) writes trade in Europe grew in 1960 and 1970 mostly in
intra-industry, but in 1980 it become slower overall but the IIT become stable.
Same time industries started becoming specialize in Inter-industry trade rather
than IIT which arises adjusting problems between industries but this problem
overcome and in 1992  creation of the
single market could push this process further and eliminating tariffs and
liberalization made this easier and possible.

Linder
(1961), the amount of two-sided trade increases if the demand structure is
similar. Putting it in a different way, the Linder assumption states that
nations with same demand structure will sell to other nations and trade in
further horizontally differentiated commodities.

Balassa
(1986) has set out to explain inter-country differences in the extent of
intra-industry trade in manufactured goods. For this purpose hypnotizes are
being derived. Firstly it concluded with joint economies that with
Intra-industry trade Economy develops and market size Increases with
contributions from traders from agglomeration economies results openness of
economies. Finally then economies divide into developed and developing country
groups and conclude that Intra-industry trade is less costly because the
adjustment cost between industry rather than inter-industry.

Zhang
and Clark (2009) investigate HIIT and VIIT for the case of United States. This
study uses both industry and country–specific characteristics as explanatory
variables. The study of Zhang and Clark (2009) show that HIIT will have
relatively low factor adjustment costs when compared with the VIIT. The results
have support for new trade theories and traditional factor endowment-based.

 

Chang
(2009) examines the main factors of HIIT and VIIT including investment approaches
of a firm in the industry of information technology for Asian, European and US
markets. The study uses time series data over the period of 1996-2005 for said
variables in sample economies. The results indicate that vertical
intra-industry trade is playing its significant role among Asian and European
markets while horizontal intra-industry trade is significant between Asian and
US.

Leitão
and Faustino (2009) also show that trade increases if the transportation costs
decrease.

From
the above literature review we conclude that producers and consumers both get
benefit from IIT. Manufacturer manufacture products at little economic
efficiency and consumer also get high range of products at cheaper prices.
There is no existence of empirical research that investigates causal
relationship of IIT of Pakistan. This study will try to fill this gap and the
research focuses on Pakistan’s IIT in agricultural and food commodities,
analyzing time series from 2012-2016.

 

 Data collection and Objective:

This paper is based on secondary
data from the National Bureau of Statistics. The research focuses on Pakistan’s
IIT in agricultural and food commodities, analyzing time series from 2012-2016

Methodology

The most common index used to
measure the intra-industry trade is the Grubel-Lloyd (1975) index. To calculate
the intra industry trade level (IIT) for an industry i will be:

                    

 *100

Or, it can be written as:

 *100

 

Where

 is the Grubel Lloyd index of intra-industry
trade i, and represents the values of exports and imports in industry i. GL
index can take values from 0 to 100. When the GLIT value is zero it indicates
that there is no IIT (because exports or imports are zero). When the value is
equal to zero, then all trade is IIT (exports equals’ imports).

 

 

 

 

 

 

RESULTS AND DISCUSSIONS

Analyzing the trends in
Pakistan’s foreign trade during the time period selected increased has been
observed both in imports and exports. Exports increased with 17% and imports
with 19% respectively the exports and imports of agri-products also increased
in the specific time with 27% and 18% respectively, overall the trade balance
remaining negative, negative trade balance is mainly because of high imports of
manufactured items and energy and gas resources (Table 1).

Agri-foods commodities of
Pakistan share in the total exports of country is 18% Fortunately, their share
increasing during the analyzed period with 7%, fact which affected the
agri-food trade balance in good, while the country imports share is remain
consistent at 6% as Pakistan itself is a agriculture country imports of
agriculture is less over the time somehow it fluctuate with 2% in time but
remain consistent, fact which affects the foreign trade turnover. . The average
annual growth rate for agri-food exports is 9%, while for agri-food imports
reached 13% (Table 1).

Table 1. Value and share of Moldova’s external trade
and agri-food trade flows, 2001-2015 (selected years)

 

2005

2007

2009

2011

2013

2015

Average Growth
rate

Exports (Thousand RUPEES)

984840562

1196637579

1617457614

2110605451

2583463177

2397692965

0.17

Imports (Thousand RUPEES)

1711158363

2512071666

2910975267

4009093041

4630520793

4644151648

0.19

Agri-food exports (Thousand RUPEES)

113759756

170920112

272241278

356595988

464915599

448651361

0.27

Agri-food imports
(Thousand RUPEES)

103890157

121756597

141005728

179555550

221052879

280008343

0.18

Trade Balance
(Thousand RUPEES)

-72631780

-1315434087

-1293517653

-1898487590

-2047057616

-2246458683

X

Agri-food Trade balance
(Thousand RUPEES)

9869599

49163515

131235550

177040438

243862720

168643018

X

Share of Agri-Food exports, %

11.5%

14.2%

16.8%

16.8%

17.9%

18.7%

X

Share of Agri-Food imports, %

6.07%

4.8%

4.8%

4.4%

4.7%

6%

X

Source: own calculations based on
data from the National Bureau of Statistics

      

Summarizing
the evolution of agri-food trade flows, there is an increasing trend is noticed
in agri-food exports from 113759756 thousands rupees in 2005 to 448651361 thousands
rupees in 2015. In 2015 a slight decrease in agri-food exports was noticed
comparatively to 2013 as result of overall world crises as the prices of most
of the exported commodities decreases in world cotton was at the number 1 whose
price decrease by 10% in international market.

The
trading structure also experienced many changes during the analyzed period of
2012-2016. Most of agri-food exports to the trading partners also increased with
the passage of time in overall but if take individually pak-china and pak-KSA agri-trade
was high in 2014-15 but it falls in 2016 as china is self-manufacturer of all the
goods as well as the most impact because of the fallen prices of energy in
world and the imports continuously increasing from the china but decreasing and
somehow stable in case of KSA. In case of other 3 trading partners the exports
are increasing in all cases with much differences and Pakistan imports not
increase as much as the exports.

 

Table
2 Pakistan agri-trade with trading partners

In
US thousand dollar.

Group of countries

 

Average

2012-13

2014 -15

2016

China

Exports

408

1394

244

Imports

4374

1319

1593

Saudi Arabia

Exports

31762

12099

2130

Imports

6115

6530

5657

UAE

Exports

16933

8010

2108

Imports

4288

5145

4112

USA

Exports

1296

1415

1691

Imports

225

284

341

Kuwait

Exports

997

195

1629

Imports

4

4

0

Source: Own calculation based
on trade map of Pakistan

Despite
the fact that the share of Kuwait decreased it still represent an important
market for Pakistan agri-food exports and any negative event or trend related
to this market can threat the trade stability in the long run. Also, it does
not stimulate and strengthen the diversification of Pakistan’s trade relations
with other countries, particularly the Saudi Arabia, USA and UAE. These markets
are highly competitive and it imposes strong barriers to enter it in terms of
quality and food security which makes it difficult to enter it. Thus a boost in
the competitiveness of the exported pakistan agri-food products is needed, and
the full use of the existing potential to increase the trade flows with these
states. The analysis of Pakistan’ intra-industrial agricultural and food
products over 2012- 2016 is based on Grubel Lloyd (GL) index, calculated by
commodity groups and by all trading partners, with respect to a specific group
of countries as: China, Saudi Arabia UAE, USA and Kuwait. According to the
results (Table 3) the level of intra-industry trade in agricultural and food
products for Pakistan is quite high.

Table
3: Grubel Lloyd indices of intra industry trade in agriculture and food trade
between Pakistan and its main trading partners, 2012 to 2016.

Groups
of countries

2012

2013

2014

2015

2016

Average

China

20.16

13.49

23.42

39.19

26.56         

24.56

Saudi
Arabia

52.13

24.60

53.19

109.02

145.29

76.84

UAE

6.90

28.07

56.16

130.30

132.21

70.72

USA

41.23

21.93

37.25

30.36

33.56

32.86

Kuwait

3.60

0

77.77

0

0

16.27

Source: own calculations

 

During
the analyzed time series, the GL index tends to increase with all its major
trading partners except Kuwait.

The
downward trend for Kuwait, regarding exports can be explained as the lack of competitiveness
for Pakistan agricultural and food products which make it difficult to access
its market. The upward trend in relation to Saudi Arabia and UAE countries
might be caused by the increase of imports from those countries. The evolution
of GL index results by commodity groups is presented in Table 4.

 

Table:
4 Intra industry trade by commodity group between Pakistan and trade partners,
2012 to 2016.

HS code

2012

2013

2014

2015

2016

Average

0106
Live
Animal

73.17

0

110.10

50.67

56.12

58.01

1701
Cane, Beet, Sugar.

59.40

8.92

31.44

95.48

69.07

52.86

2009
Fruit
& Juice

67.43

26.09

42.29

81.37

104.14

64.26

0304
Fish
Fillet…

8.82

76.56

42.94

6.82

28.78

32.78

0409
Natural
Honey

42.13

69.39

42.31

47.57

40.44

48. 31

Source:
Own calculation

For
some commodity groups the GL values present high variability over time, fact
which reflects the structural changes in pakistan agri-food trade. High and
average magnitudes of intra-industry trade presents the following commodities:
Live animals (HS0106), cane, beet and sugar (HS1701), Fruit and Juice (HS2009),
Fish and fish products (HS03024) and Natural Honey (HS0409). The commodities
with low levels are mostly imported, mainly exotic products that are not
produced in Pakistan. According to Kandogan (2003) 10 intraindustrial trade
is more common in sector with significant product differentiation, but in those
with standardized products trade tends to be more inter-industrial.

                                                    

CONCLUSIONS

 Pakistan’s agri-food trade flows experiences
important changes during the examined time series. Both Pakistan’s exports and
imports flows increased considerably, while agri-food imports increased faster
than exports. Pakistan have an edge by not having landlocked country, and its
geographic position not imposes difficulties in terms of costs for trade
collaboration with many countries. But to some crises Pakistan have very less
trade with neighboring countries. A strong table talk with neighboring
countries can enhance the trade of agri-food. A strengthen of trade relations
with UAE was accentuated due to the trade agreements signed. The level of
intra-industry trade in agricultural and food products for Pakistan is quite
high. The results of the intrindustrial level (GL) indicate a decrease with
Kuwait and increase in relation with other countries. The downward trend for
Kuwait, regarding exports can be explained as the lack of competitiveness for
Pakistan agricultural and food products which make it difficult to access those
markets. For most commodity groups the GL values present average high
variability over time, fact which reflects the structural changes in Pakistan
agri-food trade. Trade liberalization has as a positive outcome an increase in
the volume of agri-food exports of Pakistan, particularly in terms of
specialization and concentration of production and diversification of the
geographical distribution. Another positive result is the decrease in the dependence
on traditional markets. This fact imposed the increase in both quality and
variety of exported articles. It is important to maintain the positions in
relation with the main trading partners and to gather new market shares.