Tradeflow Study - UNDP Black Sea Trade and Investment Promotion ...

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II.1.3 Intra-industry trade between BSEC Member States
Although trade flows are determined by differences in comparative advantages, a wide range
of other factors also influence the success or failure of efforts to promote industrialization and
growth. In the context of globalisation of supply chain management and assembly operations,
there is a growing level of intra-industry trade (IIT), which plays an important positive role in
the success of economic growth. Theory suggests that intra-industry exchange produces
extra gains from international trade over and above those associated with comparative
advantage because it allows a country to take advantage of larger markets through
specialisation.
The IIT index ranges between zero and one (or 0 percent and 100 percent), with larger values
indicating a greater level of trade between firms in the same industry. Higher IIT ratios
suggest that net gains from specialization in different products are being exploited and that
the participating country is increasing its integration into the world economy. In the context of
this study, this suggests that both intra-industry trade opportunities are high and that the
export sector has become relatively sophisticated. The IIT index within the BSEC region is
calculated as
IIT 1
jk
xijk
mijk
i
xijk
mijk
i
Where i, j and k indicate industry, home country and partner country, respectively. X ijk and
M ijk represent exports and imports of industry i in country j to country k, respectively. Figure 3
displays the overall IIT index for each country with regards to the BSEC and the total trade
within the region for each country. One can note that the highest levels of IIT are recorded for
Romania and Bulgaria while the lowest levels relate to Albania, Armenia, Azerbaijan, Serbia
and Montenegro, and Ukraine.
Based on the results, it seems that Romania and Bulgaria have the highest integration in
supply chains, and Greece, Russia and Turkey also displaying relatively high levels of intraindustry
trade. It should be noted that the IIT can also be influenced by other factors such as
the aggregation of statistics with the result that often distinct production processes are
classified under the same chapter heading. For the purposes of this study, the two digit level
was used. The detailed results of the IIT are given in Annex 1 in Table A6.
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