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Do free trade agreements promote intra-industry trade? The case of India and its FTAs

Author

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  • Anjali Ramakrishnan
  • Poornima Varma

Abstract

The paper examines the role of free trade agreements (FTAs) in promoting intra-industry trade (IIT) between India and its selected FTAs - Association of South East Asian Nations (ASEAN), South Asian Free Trade Agreement (SAFTA) and Sri Lanka. IIT is evident for India's trade with Sri Lanka and Singapore whereas the same is low for other countries. Even the observed IIT is mostly in the form of vertical IIT (VIIT). The results based on fixed effects model using gravity equation shows that the FTAs have a significant impact in promoting IIT. This can be attributed to the high levels of VIIT observed after trade agreements are signed. The negative and significant GDP difference confirms the hypothesis of an inverse relationship between the level of IIT and the differences in development of the trading economies. If countries within an FTA are with different levels of development, then the resultant trade would mainly exhibit an inter-industry structure thus indicating possibilities of greater resource adjustment costs.

Suggested Citation

  • Anjali Ramakrishnan & Poornima Varma, 2014. "Do free trade agreements promote intra-industry trade? The case of India and its FTAs," International Journal of Trade and Global Markets, Inderscience Enterprises Ltd, vol. 7(2), pages 129-144.
    • Handle: RePEc:ids:ijtrgm:v:7:y:2014:i:2:p:129-144
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    Citations

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    Cited by:

    1. Justyna Lapinska, 2014. "Determinants of Intra-Industry Trade in Agricultural and Food Products between Poland and EU Countries," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 3, pages 159-172, September.
    2. Sakshi Aggarwal & Debashis Chakraborty, 2020. "Is there any relationship between Marginal Intra-Industry Trade and Employment Change? Evidence from Indian Industries," Working Papers 2044, Indian Institute of Foreign Trade.
    3. Sakshi Aggarwal & Debashis Chakraborty, 2022. "Which Factors Influence India’s Bilateral Intra-Industry Trade? Cross-Country Empirical Estimates," Working Papers 2260, Indian Institute of Foreign Trade.
    4. Vinko Zaninoviæ, 2022. "The intra-industry trade dynamics in CEE countries: The role of trade agreements," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 40(1), pages 129-145.
    5. Pratiksha Chaturvedi & Zaki Hussain & Biswajit Nag, 2015. "SAARC Geopolitics and Trade," South Asian Survey, , vol. 22(1), pages 78-106, March.

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