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Literature on INT and IIT
Kalbasi (2003a) employed the unadjusted Grubel and Lloyd’s (1975) index in investigating IIT between Iran and its selected major Organization for Economic Cooperation and Development (OECD) trading partners for the period covering 1997 to 2001. The IIT indices were calculated both for Iran’s total aggregate trade and also for selected major products. The selected products included food and live animals, manufactured goods, machinery and transport equipment, chemicals, miscellaneous manufactured goods, etc.
The calculated IIT indices from Kalbasi (2003) between Iran and the selected OECD countries were zero for more than half of the years investigated. For instance, there was no intra industry trade between Iran and Spain for the whole five-year period given that all the IIT index values were zero. The indices were also zero for more than three years for countries like Australia, Japan, Korea and Sweden. Overall, the study concluded that trade between Iran and most of the selected OECD countries at aggregate total level was INT driven during the 1997 to 2001 period. At disaggregated product level, there was no IIT at all for the whole period in goods such as beverages and tobacco, and animal and vegetable oil. For products such as chemicals, manufactured goods, machinery and transport equipments, there was a sequential flow of IIT, with one year trade being intra-industry trade driven, i.e., with IIT values above 50, and the following year trade being inter-industry trade dominated, with IIT values below 50. IIT was consistently evidenced in miscellaneous manufactured goods, but only for the last two years 2000 and 2001.
The Kandogan (2003b) study focused on the decomposition of trade into either IIT or INT for 22 transition economies’ trade with 28 developing and developed states for the period 1992 to 1999. The study employed the method proposed by Kandogan (2003a), firstly to decompose exports into IIT and INT, and secondly to categorize IIT into either horizontal or vertical components. Besides decomposing total trade into INT or IIT, the other objective of the research was to investigate the determinants of IIT.
The above study found out that more than 50% of trade in both machinery and manufacturing sectors were IIT driven, with the share of horizontal IIT and vertical IIT being approximately equal. Specifically, the IIT results indicated that horizontal IIT was most common in sectors where there was significant product differentiation such as manufacturing, while it was insignificant in sectors where standardized products were produced, e.g. natural resources, which were mostly underpinned by INT. On the other hand, crude materials, fuels, and animal and vegetable oils sectors were highly specialized and INT driven.
On the determinants of IIT, the study results showed that GDP values of both transition and partner countries were promoters of horizontal IIT, with vertical IIT not responding to GDP value increases. Other variables which proved to be positive determinants of IIT, especially horizontal IIT, were trade liberalization and increasing returns to scale. On the other hand, Hecksher-Ohlin and geographic distance variables were considered to have negative effects on IIT. IIT was also analyzed by McCorriston and Sheldon’s (1991) study. The study employed the Grubel-Lloyd measure to investigate whether trade between the United States of America (USA), the European Commission (EC) and the remainder of the OECD countries on one hand, with the rest of world on the other hand, in processed agricultural products for the year 1986 was either INT or IIT driven. The research also calculated the IIT indices for the EC countries excluding intra-EC trade. The processed agricultural products included meat, cheese, cereals, fruits, vegetables, sugar, both alcoholic and non-alcoholic beverages, and tobacco products.
The results from the above study show that total EC trade, including intra-EC, in all processed products was IIT driven since the Grubel and Lloyd indices were more than 70. Nevertheless, in the case where only EC external trade, i.e. excluding intra-EC trade, was considered, values of the index for seven of the ten processed products fell below 50, signifying that the EC’s external trade, excluding intra-EC trade, with the rest of the world was INT in nature. These results also support the notion that high intra-industry trade is normally expected in an integrated trading bloc such as the EC.
The indices for USA’s trade with the rest of the world indicated that the country’s overall trade was INT in nature with six values of the index being less than 50. Nevertheless, four products, namely cereal preparations, processed fruit, processed vegetables and chocolate products were IIT driven with indices above 50. Indices for the rest of the OECD showed than all the products, with the exception of processed fruit, had values of above 50, thus testifying that this group of countries’ trade with the rest of the world was IIT driven.
The study by Sharma (2000) investigated the trend patterns of IIT in the Australian manufacturing sector for the period 1979 to 1993. The research used the Grubel- Llyod’s (1975) index in an attempt to study IIT trend patterns. The calculated results showed that there was evidence of an increase in the share of IIT, from 28% in 1979 to 37% in 1993. This increased share of IIT in the country’s manufacturing products was underpinned by an increased shift towards IIT in products such as textile, garments, rubber products, and machinery and equipment. Investigations at product
level show that the total share of IIT rose from 7% in 1979 to 22% in 1993 in rubber products, while it grew from 17% to around 31% for motor vehicles and parts during the same period. Comparing the end points for the period covered, in 1979 approximately 19% of Australian manufacturing industries had lower levels of IIT which ranged between 0 and 10%, and this group of industries fell to around 5% by 1993, indicating that manufacturing industries have over the years become IIT dominated.
Literature on determinants of exports
Marques’ (2008) paper investigated unequal regionalism in the European Union (EU) whereby the economic group is composed of member countries with varying degrees of heterogeneity, especially following the group’s May 2004 and January 2007 enlargements. The main objective of the study was to empirically demonstrate that in a mixed trade bloc such as the EU-27, the different determinants of trade will result in an asymmetric effect depending on the direction of the trade flows. The heterogeneity, especially between the old EU-15 and the new EU (mostly Central and Eastern European Countries (CEEC-10)) is with regards to differences in income levels, factor endowments, size, spatial and non-spatial trade costs in industries with different degrees of economies of scale and factor-intensity.
To achieve its objective, the study made use of the generalised gravity equation proposed by Bergstrand (1989). The main advantage of this formulation, according to the author, is that it integrates « in one reduced form equation both increasing returns to scale with monopolistic competition and the factor-proportions theory of trade ». In the econometric estimation procedure, the research estimated both import and export gravity equations through the Prais-Winsten regression with country-specific autoregressive (AR (1)) terms and correlated Panel Corrected Standard Errors (PCSEs). The advantage of this technique, according to the study is that it assumes that the error terms are heteroskedastic (i.e., each country has its own variance) and contemporaneously correlated across countries (i.e., each pair of countries has their own covariance). Thus, the research estimated gravity models of both import and export trade flows between old EU-15 and new EU-107. The gravity equations for both the old and new EU were done for the following eight sectors: chemicals, leather products, machinery, metals, minerals, textiles and clothing, transport equipment, and wood products.
The estimations showed that results from import and export equations are different.
The results indicate that market sizes have a significant and positive effect on total trade and that, overall, the enlarged EU bloc tends to trade more than proportional to its market size. The coefficient of GDP per capita, which was intended to measure the purchasing power of the importing country, was not significant in some sectors, while in other sectors it was inconsistent with the theoretical expectation of a positive coefficient. For instance, in the case of EU-15 importers, the GDP per capita variable was significantly positive in three sectors; machinery, textiles and clothing, and wood products, while significantly negative in three other sectors; chemicals, leather and footwear, and minerals. In the case of the EU-10 (CEEC-10) importers, higher GDP per capita increased imports in two sectors; chemicals and metals, whilst negatively affecting imports in four industrial sectors; leather and footwear, machinery, transport equipment and wood products.
CHAPTER ONE: INTRODUCTION AND BACKGROUND
1.1 Introduction
1.2 Background
1.3 Brief country background
1.4 Justification and motivation for the research
1.5 Problem statement
1.6 Objectives of the thesis
1.7 Hypotheses of the study
1.8 Contribution of this thesis study
1.9 Scope of the study
1.10 Analytical procedure of the study
1.11 Outline of the thesis research
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction
2.2 Theoretical literature review
2.3 Empirical literature
2.4 Conclusions
CHAPTER THREE: METHODOLOGY
3.1 Introduction
3.2 Analyzing INT and IIT
3.3 Analyzing the determinants of export trade
3.4 Analyzing export destinations with unrealized potential
3.5 Data sources and description
3.6 Conclusion
CHAPTER FOUR: QUALITATIVE SECTORAL ANALYSIS
4.1 Introduction
4.2 Mining sector
4.3 Textiles sector
4.4 Meat and meat products sector
4.5 Botswana’s engagement in preferential trade arrangements
4.6 Conclusion
CHAPTER FIVE: STRUCTURE OF SECTORAL EXPORT
5.1 Introduction
5.2 Diamond sector
5.3 Meat and meat products sector
5.4 Textile sector
5.5 Conclusions
5.6 Policy recommendations
CHAPTER SIX: SECTORAL GRAVITY MODELS
6.1 Introduction
6.2 Diamond sector
6.3 Textile sector
6.4 Meat and meat products sector
6.5 Conclusion
6.6 Policy recommendations
CHAPTER SEVEN: SECTORAL EXPORT TRADE POTENTIALS
7.1 Introduction
7.2 Objectives
7.3 Export trade potential
7.4 Comparison with other studies
7.5 Causes of unrealized export trade
7.6 Conclusions
7.7 Policy recommendations for utilizing unrealized trade potential
CHAPTER EIGHT: CONCLUSIONS AND POLICY RECOMMENDATIONS
8.1 Introduction
8.2 Overall conclusions
8.3 Policy recommendations
8.4 Limitations of the study
8.5 Suggestions for future research
REFERENCES
