Thirdly, inter-industry trade stimulates innovation in industry, and can assist the economy in cases of short-term economic fluctuations. In other words countries will get more economic benefits if they concentrate on producing specific types of products within specific range, according to their comparative advantages rather than producing all ranges of specific products. Secondly, intra-industry trade gives opportunity for businesses to benefit from the economies of scale, as well as use their comparative advantages. This benefit of intra-industry trade is possible because today product range from the same industry can be highly differentiated, and intra-industry trade will provide the opportunity of having a vast range of differentiated products within the markets of trading partners. The benefits of intra-industry trade have been explained by various business researchers, and all of these benefits can be summarised into three points that which is illustrated by Johnson and Taylor (2009) in the following way:įirstly, intra-industry trade increases the variety of products the same industry, which is beneficial to both, businesses, as well as consumers. However, there are a range of benefits intra-industry trade offers businesses and countries engaging in it in general. It first sight it may seem strange that countries do engage in importing and exporting same type of products with their international partners. These trends have mostly been attributed to the fragmentation of production (outsourcing and offshoring) as a result of globalisation and new technologies” (Handjiski et al, 2010, p.15).Įxplanation of Intra-Industry Trade by Economic Theory As it has been noted, “intra-industry trade (IIT), that is trade of similar products, has been a key factor in trade growth in recent decades. Intra-industry trade, on the other hand, is a trade of products that belong to the same industry. Countries usually engage in inter-industry trade according to their competitive advantages. For instance, the trade of agricultural products produced in one country with technological equipment produced in another country can be classified to be an inter-industry trade. Inter-industry trade is a trade of products that belong to different industries. Yet, some of the aspects of international trade are still not fully researched and even existing theories related to the international trade need to be submitted to critical analysis taking into account ever-changing global economic environment.ĭifference between Inter-industry and Intra-industry tradeĪlthough their wording is very similar the terms ‘inter-industry’ and intra-industry’ trade have a very different meanings. Today with the increasing force of globalisation international trade has become very complex with multi-billion transactions taking place every year. International trade is one of the key factors of macroeconomic prosperity for any country. Differences between inter-industry and intra-industry trade.
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