the reason of the existence of intraindustry trade.docx

the reason of the existence of intra-industry trade【abstract】 why does the international trade exist? the main reason is that different countries have a comparative advantage in different goods and specialize in producing these goods for the world economy. this explains why the uk exports cars to china but imports textiles from china. it does not explain why the uk exports cars (jaguar, aston martin, and mini) to germany while simultaneously importing cars (mercedes, bmw, vw) from germany.【key words】intra-industry trade, international tradewith the rapid development of economy and transactions, international trade is part of daily life. britons drink french wine, americans drive japanese cars and russian eat american wheat. whats more, china makes european clothes but buys up raw materials that europeans would otherwise have bought. as we known, international trade is an exchange of capital, goods, and services across international borders or territories. in most countries, such trade represents a significant share ofgross domestic product. although international trade and domestic trade are both trade, there are largely different for government and in the field of economy.there are three reasons why trade between the china and uk is different from trade between beijing and shanghai.first, because international trade crosses national frontiers, governments can monitor this trade and treat it differently. it is hard to tax or regulate goods moving from beijing to shanghai but much easier to impose taxes or quota restrictions on goods imported from china or japan. governments have to decide whether or not such policies are desirable.second, if trade between beijing and shanghai redistributes income between residents of these two cities, the chinese government can, if it wishes, use the national tax system to offset this effect. if trade between the uk and china leaves the uk worse off, uk fiscal policy cannot compensate in the same way.third, international trade may involve the use different national currencies. a british buyer of american wine pays in sterling but the american vineyard worker is paid in dollars. international trade involves international payments. why does the international trade exist? the main reason is that different countries have a comparative advantage in different goods and specialize in producing these goods for the world economy. this explains why the uk exports cars to china but imports textiles from china. it does not explain why the uk exports cars (jaguar, aston martin, and mini) to germany while simultaneously importing cars (mercedes, bmw, vw) from germany.actually, a jaguar is not exactly the same commodity as a mercedes, nor is carlsberg exactly the same as stella. cars and beer are industries each making a range of different, but highly substitutable, products which enjoy brand allegiance.intra-industry trade reflects three factors. first, consumers like a wide choice of brands. they do not want exactly the same car as everyone else. second, there are important economies of scale. instead of each country making small quantities of each brand in each industry, it makes sense for the uk to make jaguars, germany to make mercedes and sweden to make volvos and then to swap them around in international trade. third, the tendency to specialize in a particular brand, to which the demand for diversity and the possibility of scale economies give rise, is limited by transport costs. intra- industry trade between germany and france is larger than intra-industry trade between germany and japan.to measure the importance of intra-industry trade, we define an index as zero when trade in a particular commodity is entirely one-way: a country either exports or imports the good, but not both.at the opposite extreme, country imports as much of the commodity as it exports. for example, in clothing there is little two-way trade. the us imports clothing but exports very little. this trade obeys the principle of comparative advantage. similarly, africa largely exports minerals but does not import them. at the other extreme is banking. here, trade is almost completely two-way. there are french a general principle, the more commodities are undifferentiated goods (fuel, steel, oil), the more trade patterns reflect comparative advantage based on relative resource abundance, as we move towards finished manufactures, product differentiation becomes dominant and comparative advantage loses some of its overriding role. intra-industry trade is more significant in cars, banking, and indeed universities where french students study in the uk and uk students study in france.the more closely markets are integrated, and the lower the obstacles to trade in terms of both distance and tariffs the more intra-industry trade we expect. japan, geographically isolated from the us and europe, engages in quite a lot of one-way trade with these trade with these markets. in contrast, the eu has a more diversified resource endowment and a more integrated market, in whi