Question

What’s the relationship between interindustry trade and intra-industry trade?

Answer 1

Inter-industry trade is a trade in products which belongs to different industries. For example, trade in agricultural goods manufactured in one country may be categorized as inter-industry exchange with technical equipment manufactured in another country. Countries typically participate in trade between industries according to their comparative advantages.

At the other hand, intra-industry trading is a trade in goods that belong to the same industry. As has been noted, in recent decades, "intra-industry trade (IIT), which is exchange in related goods, has been a key factor in commercial growth. Some of these patterns were due to market instability as a result of globalization.

Through providing an example of automotive trading between Japan and Germany, the major advantage of intra-industry trade can be demonstrated in simple terms. Let's say Toyota, a Japanese automotive maker that makes primarily family vehicles, and German automotive manufacturer Audi is focused on the production of sports cars. Accordingly, as Toyota makes more family vehicles, the lower the unit cost will be and similarly, Volkswagen will manufacture more luxury cars, the lower the price of the vehicle will be.

Intra-industry trade has evolved into one of the important macro-economic practices which are beneficial in terms of maintaining macro-economic stability, promoting innovation and increasing the number of differentiated versions of the same type of products in trading partner countries markets.