Saturday, October 10, 2009: 9:30 AM
During 1990s Baltic States along with other economic reforms liberalized their foreign trade. As a result foreign trade development became one of the main channels of integration of these countries into the European Union. Intra-industry trade plays very important role in the trade patterns, especially in that of transition countries and often considered as a measure of product integration between markets. Generally with the trade liberalisation the level of intra-industry trade increases.
The aim of the paper is to provide empirical evidence on intra-industry trade patterns and to analyze main factors of intra-industry trade development in Estonia, Latvia and Lithuania within the period 1996-2007.
The idea of intra-industry trade was firstly introduced in the 1960s. Since then the concept of intra-industry trade has made enormous steps ahead and is known to be very important in contemporary empirical trade studies. Recent data shows that 27-44% of global trade, depending on the level of aggregation used in estimations, is intra-industry one. A level of intra-industry trade in a country is characterised by the factors of vertical specialisation (the location of different stages of production in different countries including subcontracts), and horizontal intra-industry trade involving finished products.
In the paper there was given on overview of methods that are used to measure intra-industry trade. As a measure of IIT we used the Grubel Lloyd index and computed it for the Baltic State’s whole set of commodities using Eurostat 8-digit Combined Nomenclature trade data. Grubel Lloyd indices was then aggregated to 2-digit level of Combined Nomenclature. Further we analyzed share of the vertical component of intra-industry trade. The methodology follows Greenaway and is based on the assumption that the gap between the unit value of imports and the unit value of exports for each commodity reveals the type of trade. The similar goods being traded have low import-export price gap and thus reflect horizontal intra-industry trade, while different in quality goods being traded have larger import-export price gap and reflect vertical intra-industry trade. Share of vertical intra-industry trade for the Baltic States was computed. Further the econometric model was constructed to estimate the main factors of intra-industry trade development using panel data analysis.
Results provided evidence that share of vertical intra-industry trade had increased since mid-nineties for all three Baltic States. This shows convergence of the Baltic economies into the EU economy.
The aim of the paper is to provide empirical evidence on intra-industry trade patterns and to analyze main factors of intra-industry trade development in Estonia, Latvia and Lithuania within the period 1996-2007.
The idea of intra-industry trade was firstly introduced in the 1960s. Since then the concept of intra-industry trade has made enormous steps ahead and is known to be very important in contemporary empirical trade studies. Recent data shows that 27-44% of global trade, depending on the level of aggregation used in estimations, is intra-industry one. A level of intra-industry trade in a country is characterised by the factors of vertical specialisation (the location of different stages of production in different countries including subcontracts), and horizontal intra-industry trade involving finished products.
In the paper there was given on overview of methods that are used to measure intra-industry trade. As a measure of IIT we used the Grubel Lloyd index and computed it for the Baltic State’s whole set of commodities using Eurostat 8-digit Combined Nomenclature trade data. Grubel Lloyd indices was then aggregated to 2-digit level of Combined Nomenclature. Further we analyzed share of the vertical component of intra-industry trade. The methodology follows Greenaway and is based on the assumption that the gap between the unit value of imports and the unit value of exports for each commodity reveals the type of trade. The similar goods being traded have low import-export price gap and thus reflect horizontal intra-industry trade, while different in quality goods being traded have larger import-export price gap and reflect vertical intra-industry trade. Share of vertical intra-industry trade for the Baltic States was computed. Further the econometric model was constructed to estimate the main factors of intra-industry trade development using panel data analysis.
Results provided evidence that share of vertical intra-industry trade had increased since mid-nineties for all three Baltic States. This shows convergence of the Baltic economies into the EU economy.