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Intra-industry trade: The Pakistan experience

By Muhammad Shahbaz and Nuno Carlos Leitão

Abstract

The simultaneous exports and imports of a product within country or a particular industry called intra-industry trade (IIT) or two-way trade. In the recent years, the government of Pakistan had realized factors to liberalize the international trade. The literature of international economics demonstrates that this condition (trade liberalization) induces the IIT. The case study for Pakistan has been negligence in the economic literature. This manuscript analyses the Pakistan's intra-industry (IIT) during the period 1980-2006. This study uses country-specific characteristics as explanatory variables. The results indicate that IIT is a negative function of the difference in GDP per capita between Pakistan and their trade partners. Statistically strong evidence is also found that this trade is influence by the similar demand. We also introduce an economic dimension; this proxy confirms the positive effects of IIT. This result reveals the importance of scales economies and the variety of differentiated products. Our results also confirm the hypothesis that trade increases if the transportation costs decrease.

Topics: C20 - General, F12 - Models of Trade with Imperfect Competition and Scale Economies
Year: 2011
OAI identifier: oai:mpra.ub.uni-muenchen.de:28665

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