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Mr. Peter J Kunzel and Mr. Oleh Havrylyshyn

industrial investment and by reducing the need for labor mobility imposes less social costs. Moreover, increased specialization enhances competitiveness and acts as a catalyst for new innovations, technologies, and growth. These considerations are relevant for policy formulation that aim to minimize social and economic costs in the process of trade liberalization. For the purpose of this paper, we will focus only on the IIT index as an indicator reflecting broadly the degree of competitiveness of Arab countries. One needs to be cautious interpreting the IIT as an

Mr. Peter J Kunzel and Mr. Oleh Havrylyshyn
Recent and ongoing agreements to liberalize trade between the European Union (EU) and Arab countries raises the question as to how the latter will fare in a more competitive environment. This paper uses the Grubel-Lloyd intra-industry trade (IIT) index as an indicator of the degree of industrial specialization to study Arab countries’ ability to compete in a more open trade setting. It concludes that whereas increased specialization has been achieved over the last decade in Arab countries, IIT remains low not only in absolute terms, but even in a cross-country comparison, when normalized for the level of development.
Ms. Dalia S Hakura and Ms. Florence Jaumotte

Growth 2. Descriptive Statistics on TFP Gaps 3. Share of Imports from OECD 4. Percent of Countries with an Intraindustry Trade Index Greater Than 0.7 in 1970, by Region 5. Percent of Countries with an Intraindustry Trade Index Greater Than 0.7 in 1990, by Region 6. Estimation Results of Equation 1 for TFP1 7. Estimation Results of Equation 2: Sensitivity to the Cut-off for the IIT Index for Total Sample 8. Estimation Results of Equation 2 for TFP1 9. Estimation Results of Equation 4 for TFP1 10. Nonlinear Estimation Results for TFP1 Appendix I: Data

Mr. Peter J Kunzel and Mr. Oleh Havrylyshyn

-term benefits are anticipated, increased competitiveness is expected to spur improvements to efficiency, stimulate foreign investment, generate growth possibilities, and present access to larger markets. Given that Arab countries face liberalization, this paper makes use of the Grubel-Lloyd intra-industry trade (IIT) index as an indicator of the degree of industrial specialization to study Arab countries’ ability to compete in a more open trade setting. The objective thus is to analyze how specialized Arab economies are relative to other countries at present, how well they

Ms. Dalia S Hakura and Ms. Florence Jaumotte

sector’s IIT index. The sample used in this paper covers intra- and interindustry trade in 87 countries over the period 1970–93. The tests yield three findings. First, they confirm that developing country trade with industrial countries enhances the technological development of developing countries. Second, in both the linear and nonlinear regression specifications, evidence showed that intraindustry trade had a stronger effect on TFP growth than did interindustry trade. Finally, evidence showed that certain country-specific factors could, if unchanged, keep

Sayuri Shirai
This paper provides a theoretical model to address the issue of how industrialization affects the structure of international trade. Considering both horizontal and vertical product differentiation, the model shows that intra-industry trade increases when product quality improvement emerges in a developing country and when a difference in relative factor endowments between a developed and a developing countries shrinks. To promote understanding of the conclusions of the model, the paper also uses actual trade data between Japan and Indonesia and between Japan and Korea.
Ms. Dalia S Hakura and Ms. Florence Jaumotte
Research shows that international trade is an important channel for the transfer of technology. Building on this evidence, this paper examines the effects of inter- and intraindustry trade on technology transfer. The paper develops and tests the hypothesis that intraindustry trade stimulates more technology transfer than interindustry trade because countries are likely to absorb foreign technologies more easily when their imports are from the same sectors as their production and export sectors. The results of empirical tests for 87 countries during 1970–93 support this hypothesis.
Sayuri Shirai

manufacturing remained small. The major share of trade between the two countries came from flows of primary products from Indonesia to Japan and from flows of manufactured products from Japan to Indonesia. 2. Structural change in intra-industry trade In this subsection, we consider structural change in intra-industry trade in manufacturing. We utilize the following intra-industry trade (IIT) index for a commodity or industry i, which is developed by Grubel and Lloyd (1971) : 1/ I I T i = 1

Sayuri Shirai
This paper surveys the recent literature on the Japanese distribution system to consider two propositions: first, that the system is inefficient, and second that prices of imported products tend to be higher in Japan than in other markets. Most of the literature demonstrates that the system is efficient. However, the efficiency has not necessarily resulted in high social welfare as consumers have had limited access to various product lines or paid high prices for some products. This paper examines the distribution system in the automobile industry to promote understanding about the impacts of the system on price differentials.
Yoko Oguro, Kyoji Fukao, and Mr. Yougesh Khatri
This paper theoretically and empirically investigates export sensitivity to exchange rates in the context of intra-industry trade (IIT). It is assumed that more IIT implies a smaller elasticity of substitution among differentiated products and vice versa. The model presented suggests the gap in production costs between two countries has an influence on IIT as well. Industry-level pane regressions of thirty-eight trading pairs provide strong empirical support for the idea that the exchange rate sensitivity of exports declines in concert with the extent of ITT. An obvious policy implication is that the effectiveness of exchange rates in addressing trade imbalances will diminish as the extent of IIT increases.