View of MEASUREMENT OF INTRA-INDUSTRY TRADE BETWEEN INDIA AND PAKISTAN

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Vol.03, Issue 09, Conference (IC-RASEM) Special Issue 01, September 2018 Available Online: www.ajeee.co.in/index.php/AJEEE

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MEASUREMENT OF INTRA-INDUSTRY TRADE BETWEEN INDIA AND PAKISTAN

Dr. Manisha

Abstract: Today, in a globally interdependent market place no two countries can afford to be isolated. Moreover, trade can serve as a powerful tool for conflict resolution between India and Pakistan. It is time that two countries throw off the shackles of history and realize the benefits of economic partnership. Together India and Pakistan should take on joint responsibility for peaceful, prosperous and cooperative development in South Asia. So, the present paper makes an attempt to see the structure of Trade between India and Pakistan and extent of bilateral trade with the help of Global Lloyd Index.

Keywords: India-Pakistan, South Asia, GL index JEL CODES: F0, F1 1. INTRODUCTION

After the post Second World War period, international relations witnessed a strong surge towards regionalism. The current scenario is that the world has been facing many social, economic, political and security problems. Amultilateral partnership of states in the region by pooling the available resources has been initiated in many parts of the world which is the best solution. Regionalism got further impetus with the emergence of new issues that threatened the fabric of international norms, such as terrorism, drug trafficking, extremism, and economic crisis. (Siddiqui, 2010). By the end of the Cold War the new dynamics and major transformations have taken place in the South Asia(Aggarwal and Mukherji, n.d).

When regionalism is becoming stronger one and South Asia is no exception to this. Due to economic and political instability between India and Pakistan(

Kher, 2012). Statistical evidence, however, suggests that despite political tensions, trade has been taking place.

Again, still under a military government in 1987, Pakistan increased the number of permitted traded goods with India nearly six fold, from 42 to 249, a measure which led to a large increase in the following three years. Further trade between the two countries peaked in 1998, at US$ 354 million, the year in which nuclear tests were carried out in both countries. In 2001, when Musharraf was in control, India's exports to Pakistan were the highest ever at US$ 219 million (The Financial Express, 2003). A halting factor has been the fact that Pakistan has not accorded India a Most Favoured Nation (MFN) status. India on the other hand accorded MFN status to Pakistan in 1996 (Taneja, 2001). In the same year, Pakistan increased its positive list to 600 items that may be legally imported from

India (The Hindu, 2016). Further, in May, 2003, Pakistan's prime minister announced the inclusion of another 78 items to the positive list. There are two vital reasons why Pakistan would make serious efforts at improving Indo-Pakistan trade relations¹. Firstly, the Indian economy has in recent years been far ahead of Pakistan and second, India has been considerably more successful than Pakistan in its attempts at regional/bilateral trading arrangements.

2. DATA AND RESEARCH

METHODOLOGY

The study is based on the secondary source of data. The Data has been collected for UNCOMTRADE for the period of 2000, 2005, 2010 and 2015 foranalyzing the trade specialization of the commodities between India and Pakistan.

2.1 Intra – Industry Trade (IIT)

In today’s economies, international specialization does not depend soley on the fact that different countries specialize in the production of different goods, but it may also happen that several countries specialize in the production of different types of goods from the same industry, which resuls in Intra-Industry trade. IIT is the concurrent import and export of the same kind of goods. There are several ways to measure IIT, but the most commonly applied method is from Grubel- Lloyd (G-L) formula; G-L index for bilateral trade would be used to find out the intra- industry trade between India and Pakistan. It is a modified form used by Sahoo (2009). The formula is:

GLij=1-{|Xij-Mij|} / (Xij+Mij)

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2 Where,

GLij - G-L Index for i and j country Bilateral Trade

Xij -Exports of i goods to j country Mji- Imports of i goods to j country

In the above equation, a value of 0 for either Xijor Mjiwhich refers to a one- way trade or an interindustry trade. On the other side, Xij=Mji, thenGLij=1 which means trade is equal in both directions, which depicts intra-industry trade.

2.2 Trends in Bilateral Trade

Table 1, shows the India’s top five trading partner’s percentage share of trade for the period of 2000, 2005, 2010 and 2015.

Maximum trade of India is with the US. In 2000 percentage share of exports of India has been recorded 9.51 and in 2015 the percentage increased many fold that is 41.18. On the other hand, the import’s share has also been increased from 2000 to 2015 that is 5.02 to 35.83. It clearly indicates that India has a trade surplus with the US and both the countries has better trade relations. Second highest trading partner of India is China. China demand for exports has been rising from 2000 to 2015 and its percentage share is 2.08 to 27.14. Here, India has a trade deficit with China, which shows that India is not able to compete with the China made products. Demand of Chines products is higher in India due to the cheap cost prices. China demand for exports has been rising from 2000 to 2015 and its percentage share is 2.08 to 27.14. Here, India has a trade deficit with China, which shows that India is not able to compete with the china made products.

Demand of Chines products is higher in India due to the cheap cost prices. The third trading country is UAE, it seems that India exports share with the UAE has been 3.47 percent in 2000 to 42.77 percent in 2015. With the Saudi Arabia, Indian exports rises from 3.36 percent to 44.86 percent in 2015. Similarly, with the Germany, export and imports both are increasing, butthe imports share is more than exports. It seems that India has a trade deficit with the China and Germany.

Table 2 shows that Pakistan top ten trading partner’s percentage share for the period of 2005, 2010 and 2015.

Maximum trade of Pakistan is with the United States. In 2005, the percentage share has been found to be 24.61 percent increased to 17.27percent share in 2015

and imports also increased from 1.37 percentage share to 16.18 percent share.

The second top destination country of Pakistan is China, exports increased from 10.38 percentage share to a 46.28 percentage share and imports share has been 11.70 percent to 55.00 percent.

Similarly, UAE export has been recorded 2.49 percentage share rise to 17.27 percentage share in for the respective period of study. Kenya, export has been 12.80 percent share increased to 53.73 percent share for the study period.

Imports has also been increased from 16.31 percentage share in 2000 to 31.47 percentage share in 2015. With the Saudi Arabia, Pakistan export share has found to be 19.42 percent in 2005 and 23.10 percent share in 2015 and the value of the import share has been 22.66 percent in 2005 increased to 25.68 percent in 2015. It seems that Pakistan has a trade deficit with all the countries except United States.

Fig. 3 revels the India trade with the Pakistan for the period of 2000 to 2015. In 2000, India exports to Pakistan US$ 163832.124 billion increased to US$593061.945 billion in 2015; increased by 72.37 percentage points. In 2006, exports value has been US$ 1235038.945 billion increased in 2010 i.e., US$

2235787.729 billion (increased by 73.47 percentage points). Similarly, in 2011 exports has been US$ 1678131.096 billion and US$ 1963455.90 billion in 2015; increased by 14.53 percentage points. It is clear that from the fig. that in 2006-2010 India exports to Pakistan has been increased as a result of the amendment in the Maritime protocol. On the other side, India imports from Pakistan in 2000 has been US$

163832.124 billion and US$ 593061.926 billion in 2005; increased by 97.23 percentage points. During 2006, imports has been recorded US$ 1235038.945 billion and US$ 2235787.729 billion in 2010; 44.76 percentage points. In 2011, imports recorded US$ 1678131.096 billion increased in 2015 that is US$

1963455.90 billion that is increased by 14.53 percentage points. Total trade for the period of study has been US$

233453.665 billion in 2000 increased to US$ billion. India total exports US$

20610915.43 billion are more than imports US$ 5073101.897. It is clear from

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3 the table that India has a trade surplus with Pakistan.

Fig. 4 revels the Pakistan trade with India for the period of 2000 to 2015.

In 2000, Pakistan exports to India US$

59418.888 billion increased to US$

334872.008 billion in 2005; increased by 2.45 percentage points. In 2006, exports value has been US$ 326039.957 billion decreased in 2010 i.e., US$ 269032.215 billion (increased by 0.21 percentage points). Similarly, in 2011 exports has been US$ 272495.166 billion and US$

310980.804 billion in 2015; increased by 12.37 percentage points. On the other side, Pakistan imports from India in 2000 has been US$ 183176.624 billion and US$ 576033.381 billion in 2005;

increased by 96.82. During 2006, imports has been recorded US$

1114992.243 billion and

US$1607334.697 billion in 2010; 30.63 percentage points. In 2011, imports recorded US$ 1607334.697 billion increased in 2015 that is US$

18274594.06 billion that is increased by 91.20 percentage points. Total trade for the period of study has been US$

242595.512 billion in 2000 increased to

US$ 1971167.836 billion. Pakistan total imports US$ 4612317.986 billion are more than Indian imports US$

18274594.06 billion.

Table 5, reveals the intra industry trade between India and Pakistan. The highest IIT has been found in Edible vegetables and certain roots and tubers (0.35) in 2000. In 2005, maximum IIT has been in Products of animal origin, nes (0.74) followed by Edible vegetables and certain roots and tubers (0.60). During 2010, highest IIT has been recorded in Products of animal origin, nes (0.39) and in 2015, maximum IIT has been in Edible fruit, nuts, peel of citrus fruit, melons (0.16). Table 6, depicts the intra industry trade between Pakistan and India for the period of 2005, 2010 and 2015. In 2005, Pakistan has a highest Intra industry trade in Edible vegetables and certain roots and tubers (0.63). During 2010, maximum IIT value has been recorded in Products of animal origin, nes (0.34).

Similarly, in 2015, the value of IIT has been highest in live trees, plants, bulbs, roots, cut flowers (0.80).

Table 1: India Top five Trading Partners (Percentage Share)

Country Year 2000 2005 2010 2015 United States Export 9.51 16.90 24.10 41.18 Import 5.02 14.55 33.44 35.83 China Export 2.08 20.36 49.43 27.14 Import 1.28 8.82 35.77 53.42

UAE Export 3.47 12.01 39.10 42.77

Import 1.79 8.49 52.12 34.21 Saudi Arabia Export 5.51 11.67 30.53 47.46 Import 3.36 3.21 42.80 44.86 Germany Export 8.98 17.17 29.53 34.62 Import 8.22 16.94 17.51 50.00

Source: Calculated from WITS (World Integrated trade Solution), 2016

Table 2: Pakistan Top five Trading Partners (Percentage Share)

Country Year 2005 2010 2015 United States Export 24.61 35.95 17.27 Import 21.55 45.65 16.18 China Export 10.38 33.00 46.28 Import 11.70 26.27 55.00

UAE Export 24.61 35.95 17.27

Import 16.13 34.16 37.27 Kenya Export 12.80 24.88 53.73 Import 16.31 19.48 31.47 Saudi Arabia Export 19.42 22.41 23.10 Import 22.66 32.80 25.68

Source: Calculated from WITS (World Integrated trade Solution), 2016

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Fig 1: India’s Exports and Imports with Pakistan (2000-2015) US$ billion

Fig 2: Pakistan Exports and Imports with India from 1981-2015

Table 5: Intra-Industry Trade between India and Pakistan

HS code Product Description

2000 2005 2010 2015 01 Live animals

- 0 0 -

02 Meat and edible meat offal

- 0 0 -

03 Fish, crustaceans, molluscs, aquatic invertebrates nes

- 0.16 0.00 0.00

04 Dairy products, eggs, honey, edible animal product nes

0 0.00 0.00 0.00 05 Products of animal origin, nes

- 0.74 0.39 0.00

06 Live trees, plants, bulbs, roots, cut flowers

0.00 0.00 0.01 0.00 07 Edible vegetables and certain roots and tubers

0.35 0.60 0.23 0.02 08 Edible fruit, nuts, peel of citrus fruit, melons

0.03 0.07 0.13 0.53 09 Coffee, tea, mate and spices

0.06 0.16 0.06 0.16

Source: Calculated from UNCOMTRDAE, 2017.

0 1000000 2000000 3000000

20002001200220032004 2005 2006

2007 2008 2009

2010 2011 2012 2013 2014 2015

Chart Title

Export Import Trade

0 500000 1000000 1500000 2000000 2500000

20002001200220032004200520062007 2008 2009

2010 2011 2012 2013 2014 2015

Chart Title

Exports Imports Trade

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Table 6: Intra Industry trade between Pakistan and India

HS code Product Description

2005 2010 2015 01 Live animals

0.00 0.27 0.00 02 Meat and edible meat offal

0.00 0.29 0.00 03 Fish, crustaceans, molluscs, aquatic invertebrates nes

0.00 - 0.00

04 Dairy products, eggs, honey, edible animal product nes

0.07 0.00 0.00 05 Products of animal origin, nes

0.00 0.34 0.50 06 Live trees, plants, bulbs, roots, cut flowers

0.00 0.04 0.80 07 Edible vegetables and certain roots and tubers

0.63 0.00 0.00 08 Edible fruit, nuts, peel of citrus fruit, melons

0.03 0.03 0.09 09 Coffee, tea, mate and spices

0.09 0.04 0.10

Source: Calculated from UNCOMTRDAE, 2017.

3. CONCLUSION

The success of SAARC has been limited when compared to other regional institutions like ASEAN, it is mainly because bilateral conflicts between individual SAARC members. Bilateral trade between the countries enhance the development of infrastructure.

Economies can be more dynamic with the flow of information and technology, knowledge spill-over, increased foreign direct investments, and regulatory cooperation. India has a trade surplus with Pakistan but Pakistan hasa trade deficit with India. Both the countries should engage the external powers in a positive way to minimize their intervention in the bilateral disputes.

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