Countries
ISIC1
ISIC2
ISIC31
ISIC32
ISIC33
ISIC34
EU-15
-0.11
0.18
-0.11
-0.36
-0.10
0.08
Philippines
0.49
0.17
0.45
0.36
0.46
0.38
Indonesia
0.52
0.09
0.43
0.41
0.40
0.34
Malaysia
0.44
0.34
0.42
0.39
0.29
0.45
Singapore
0.41
0.26
0.40
0.36
0.24
0.30
USA
-0.04
0.05
0.03
0.04
-0.13
-0.00
China
0.31
0.02
0.43
0.18
0.66
0.37
Japan
0.37
0.22
0.38
-0.13
0.05
0.11
Korea
0.41
0.25
0.36
0.14
0.60
0.48
India
0.04
0.11
0.06
-0.01
-0.08
0.07
Number of products
376
115
385
864
70
153
Countries
ISIC35
ISIC36
ISIC37
ISIC38
ISIC39
EU-15
0.01
-0.10
0.22
-0.19
-0.05
Philippines
0.38
0.34
0.23
0.30
0.29
Indonesia
0.42
0.29
0.38
0.35
0.14
Malaysia
0.42
0.49
0.49
0.39
0.19
Singapore
0.20
0.24
0.47
0.32
0.10
USA
-0.01
-0.03
0.27
-0.06
-0.08
China
-0.06
0.13
0.31
0.34
0.20
Japan
0.04
0.10
0.28
0.09
-0.16
Korea
0.39
0.25
0.45
0.30
0.11
India
0.01
-0.13
0.12
0.11
-0.02
Number of products
1,005
154
396
1,324
169
Note:
ISIC-1 - Agriculture, hunting, forestry, and fishing; ISIC-2 - Mining and quarrying;
ISIC-3 – Manufacturing. ISIC-31 - Manufacture of Food, Beverages and Tobacco, ISIC-32 -
Textile, Wearing Apparel and Leather Industries, ISIC-33 - Manufacture of Wood and Wood
Products, Including Furniture, ISIC-34 - Manufacture of Paper and Paper Products, Printing
and Publishing, ISIC-35 - Manufacture of Chemicals and Chemical, Petroleum, Coal, Rubber,
and Plastic Products, ISIC-36 - Manufacture of Non-Metallic Mineral Products, except Prod-
ucts of Petroleum and Coal, ISIC-37 - Basic Metal Industries, ISIC-38 - Manufacture of Fabri-
cated Metal Products, Machinery and Equipment, ISIC-39 - Other Manufacturing Industries.
Source:
Author’s own calculation. Calculated from PC-TAS, UN.
Does AFTA Create More Trade for Thailand?
67
3.3 Intra-Industry Trade Index
Besides the degrees of similarity and intensity in countries’ trade with one
another, another positive feature of this trade structure is the high degree of
intra-industry trade between the prospective countries and the member
states. Intra-industry trade refers to the exchange of products belonging to
the same industry. The term is usually applied to international trade, where
the same kinds of goods and services are both imported and exported. Intra-
industry trade plays a particularly large role in the trade in manufactured
goods among countries, which accounts for most of world trade. Over time,
countries have become increasingly similar in their levels of technology and
in the availability of capital and skilled labor. Thus, nowadays, there is often
no clear comparative advantage within an industry due to different endow-
ment and non-identical trade structure. Much of international trade there-
fore takes the form of two-way exchanges within industry, driven in large
part by economies of scale rather than inter-industry specialization (Krug-
man 1995).
Intra-industry trade not only increases growth in intra-regional trade
blocs, but also generates benefits from trade by increasing product variety.
14
Intra-industry trade allows countries to benefit from larger markets. By
engaging in intra-industry trade, a country can simultaneously reduce the
number of products it produces and increase the variety of goods available
to domestic consumers.
15
Therefore, intra-industry trade tends to be preva-
lent between countries that are similar in their factor endowment, such as
capital-labor ratio, skill levels, and so on. Gains from trade will be large
when economies of scale are strong and products are highly differentiated.
To investigate this issue, the third indicator, Intra-Industry Trade (IIT),
is calculated to reflect the pattern of intra-industry trading between coun-
tries.
16
This index captures trade between two countries (Thailand and an-
14 Intra-industry trade does not reflect comparative advantage. It is economies of
scale that keep each country from producing the full range of products for itself. In
this case, economies of scale can be an independent source for determining trade
volumes.
15 To produce fewer varieties, a country can produce each variety of goods on a large
scale, with higher productivity and lower costs. At the same time, consumers bene-
fit from the increased range of goods on offer.
16 To be more precise, the standard formula for calculating the importance of intra-
industry trade within a given industry is ITT=
ij
ij
ij
ij
M
X
M
X
1
where
ij
X
is the value
of country i’s exports of product j to the market under investigation and
ij
M
is the
value of the country’s imports of product j from the market being examined. If
68
Piriya Pholphirul
other ASEAN country in this case) within the same product group. A high
IIT index shows a high trade proportion in that particular product group,
and a low IIT index implies less trading of that product group and a
possibility to compete in the third country. Therefore, a high level of IIT
between two countries suggests an advanced degree of economic integration
and tends to be positively correlated with participation in a preferential trad-
ing area.
For simplicity, the products shown within this calculation indicated as a
two-digit ISIC level illustrate the intra-trade pattern between Thailand and
ASEAN and East Asia countries. By observing the sectors that contained
high proportions of export shares between 1997 and 2001, for example, the
IIT indices are higher for the ASEAN countries than those of East Asia
countries for items in ISIC-32 (“Textile, Wearing Apparel and Leather
Industries”) (10.48 per cent), ISIC-35 (“Manufacture of Chemicals and
Chemical, Petroleum, Coal, Rubber and Plastic Products”) (10.51 per cent),
and ISIC-38 (“Manufacture of Fabricated Metal Products, Machinery and
Equipment”) (46.91 per cent). As a previous study conducted by the Thai-
land Development Research Institute (1996) has also shown, we can see that
the intra-trade patterns between Thailand and AFTA member countries
indicate a high degree of intra-industry trade that is different from the trade
pattern of Thailand and other non-AFTA countries, which seems to indicate
inter
-industry trade. Therefore, this implies that the gains that might come
from trade creation from AFTA can be caused by an increase in the trade
volumes in the same industries rather than from trade between different
industries, which might be predicted from the original trade theory.
there is no intra-trade within a given industry, we expect a country either to export
a product or to import it, not both, in which case the IIT index would always equal
zero. On the other hand, if a country’s exports and imports within an industry are
equal, we find IIT = 1.
Does AFTA Create More Trade for Thailand?
69
Table 5:
Thailand’s Intra-Industry Trade (IIT) Index, Averaged for 1997 to
2001
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