THE FORMATION OF RUSSIAN AGRARIAN TRADE STRUCTURE: INTER-INDUSTRY VS. INTRA-INDUSTRY TRADE ACTIVITIES

Transcription

1 ACTA UNIVERSITATIS AGRICULTURAE ET SILVICULTURAE MENDELIANAE BRUNENSIS Volume Number 6, THE FORMATION OF RUSSIAN AGRARIAN TRADE STRUCTURE: INTER-INDUSTRY VS. INTRA-INDUSTRY TRADE ACTIVITIES Natala Ishchukova 1, Luboš Smutka 1, 2 1 Department of Economcs, Czech Unversty of Lfe Scences Prague, Kamýcká 129, Praha 6-Suchdol, Czech Republc 2 Faculty of Economcs and Envronmental Management, ITMO Unversty, Lomonosov street 9, St. Petersburg,, Russan Federaton Abstract ISCHUKOVA NATALIA, SMUTKA LUBOŠ The Formaton of Russan Agraran Trade Structure: Inter-ndustry vs. Intra-ndustry Trade Actvtes. Acta Unverstats Agrculturae et Slvculturae Mendelanae Brunenss, 62(6): The paper s focused on specalzaton of Russa s foregn trade n agraran products and foodstuffs n terms of nter-ndustry and ntra-ndustry trade. The man objectve of ths study s to analyse the extent of ntra-ndustry trade n Russa s foregn trade n agrcultural products and to dentfy sgnfcant changes n trade patterns at the ndustry level over the transformaton perod ( ). The results comng from ndvdual conducted analyses provde a systematc decomposton of Russa s foregn trade nto three trade types: nter-ndustry, ntra-ndustry n horzontally and vertcally dfferentated products. Inter-ndustry type of trade domnates n Russan foregn trade n agrcultural and food products and accounts for about a thrd of total trade flows. The analyss revealed sgnfcant dfferences n the ntensty of ntra-ndustry trade, dependng on geographc regon. The lowest level of ntra-ndustry trade s observed n relaton to Afrca and South Amerca, the hghest - n relaton to CIS countres. There were also found some trends, ncludng the expandng ntra-ndustry trade n relaton to the CIS countres, as well as a decrease n relaton to Asan and EU countres. Keywords: Russan Federaton, agraran and foodstuff products and trade, nter-ndustry trade, vertcal and horzontal ntra-ndustry trade INTRODUCTION The process of economc transformaton and trade lberalzaton n Russa that started wth the collapse of the Sovet Unon contnues to ths day. Currently Russa has the foregn trade surplus manly based on the advantages of possessng natural resources (natural fuel and metals). The raw materals orentaton of Russa s export overshadows the development of exports of other sectors such as manufacturng and agrculture. Russa plays a sgnfcant role n the nternatonal market of agrcultural products as mporter rather than as an exporter. Nevertheless, from the pont of vew of food securty and long-term development (takng nto account the exhaustblty of fuel resources) agrculture s of great mportance for Russan economy. The process of economc transformaton s characterzed, among other thngs, by sgnfcant changes of food consumpton as well as foregn trade patterns. Ths paper s focused on the changes n the patterns of Russan foregn trade n agrcultural products and foodstuffs durng the transtonal perod. Specfcally, we amed to nvestgate n detal the nature the trade. One of the tools that help us understand and analyze the structure of foregn trade s ts dvson nto ntra-and nter-ndustry trade. The mportance of ntra-ndustry trade arses from ts character. Ths concept s one of the most mportant fndngs on nternatonal trade theory. It was developed by Helpman and Krugman (1985), and assocated wth factor endowments, product dfferentaton and ncreasng returns of scale. 1293

2 1294 Natala Ishchukova, Luboš Smutka Afterwards, ntra-ndustry trade has been dvded by Falvey (1981) nto two types: horzontal and vertcal. Horzontal IIT refers to homogenous products wth the same qualty but wth dfferent characterstcs, whle vertcal IIT means products traded wth dfferent qualty and prce. Horzontal dfferentaton s more lkely between countres wth smlar factor endowments, whle vertcally dfferentated goods occurs because of factor endowment dfferences across countres (Jambor, 2013). For many countres ntra-ndustry trade consttutes a sgnfcant part of the total trade tlows smultaneous export and mport flows wthn ndustres. Many studes note that share of ntra-ndustry trade n the volume of global trade ncreases. Ths leads to changng nature of nternatonal trade and ts structure of goods. It means that ntra-ndustry trade does not need to be based on comparatve advantage. Intra-ndustry trade occurs more frequently among countres that are smlar n terms of actor endowments, smlar per capta ncome, close geographcal dstance and low barrers to nternatonal trade etc. Thus, the study of the share of ntra-ndustry trade n the Russan agrcultural trade wll help to better understand ts nature, and the analyss of ts changes wll help to dentfy the man trends n ts structure. Moreover, a hgher level of IIT between countres shows that a country s more ntegrated. MATERIAL AND METHODS The objectve of ths study s to consder the extent of ntra-ndustry trade n Russa s foregn trade n agrcultural products and to dentfy sgnfcant changes n trade patterns at the ndustry level over the transton perod. Thereby, n ths paper we provde a systematc decomposton of Russa s foregn trade n agrcultural products nto three trade types: nter-ndustry, ntra-ndustry n horzontally and vertcally dfferentated products, over the perod The analyss s performed n relaton to ndvdual regons (European Unon, Commonwealth of Independent States, Afrca, Asa and North and South Amerca). Dsaggregated Russan and worldwde trade data have been collected from the UN Comtrade database. We used 4-dgt level data classfed accordng to the Harmonzed System Classfcaton (HS). The classfcaton ncludes about 200 commodty groups. The artcle adopts a range of methods for broader and more comprehensve analyss of the subject. Frstly, we calculated the tradtonal Grubel- Lloyd ndex. Then we appled The Fontagne and Freudenberg (1997) methodology as well as Greenaway s method (1995) for the analyss of the blateral trade wth ndvdual regons and countres. The Grubel-Lloyd Index To measure the extent of ntra-ndustry trade (IIT), ths study uses the most wdely preferred tradtonal Grubel-Lloyd (G-L) ndex. Ths ndex measures ntra-ndustry trade as a percentage of a country s total trade whch s assumed to be balanced, that s exports equal mports. For an ndvdual product group or ndustry the share of IIT s formulated as: X M GL 1 ( X M, (1) ) where X and M stand, respectvely, for the exports and mports of ndustry. The ndex of ntrandustry trade takes values from 0 to 1 as the extent of ntra-ndustry trade ncreases, that s, 0 GL 1 (Koçyğt, 2007). The GL ndex n ths equaton can be modfed to obtan the average level of ntra-ndustry trade for a country j (for N set of ndustres). GL 1 N 1 N 1 X M ( X M ). (2) Fontagné and Freudenberg Method There s another method n the lterature to dstngush nter- and ntra-ndustry trade. Fontagné and Freudenberg (1997) categorzed trade flows and computed the share of each category n total trade. They defned trade to be ntra-ndustry when the value of the mnorty flow represents at least 10% of the majorty flow. Formally: Mn( X, M ) 10%. (3) Max( X, M ) If the value of the mnor flow s below 10%, trade s classfed as nter-ndustry n nature. If the opposte s true, the FF ndex comes formally as: FF p k p p ( Xjk M jk ) ( X M ), (4) j j jk jk where X and M denote export and mport, respectvely, whle p dstngushes ntra-ndustry trade, j s for the number of product groups and k s for the number of tradng partners (Wang Jng, 2010). Horzontal and Vertcal Intra-ndustry Trade: Greenaway s Method Intra-ndustry trade can take two forms: horzontal (HIIT) and vertcal (VIIT). The latter consders the exchange of smlar goods of dfferent qualty, whle the former comprses exchange of smlar commodtes dfferentated by characterstcs nstead of qualty (Alger, 2004).

3 The Formaton of Russan Agraran Trade Structure: Inter-ndustry vs. Intra-ndustry Trade Actvtes 1295 Accordng to the method of Greenaway et al. (1995), a product s horzontally dfferentated f the unt value of export compared to the unt value of mport les wthn a certan range. Formally, ths s expressed for blateral trade of horzontally dfferentated products as follows: X UVjt 1a 1 a, (5) M UV jt where UV means unt values, X and M means exports and mports for goods. The most of studes use a unt value dsperson of 15 percent,.e. = (Abd-el-Rahman (1991), Greenaway et al. (1995), Aturupane et al. (1999), Blanes et al. (2000), Alger (2004), etc.) It should be noted that the coeffcent s ntally appled to 5-dgt SITC classfcaton. It seems possble to apply ths coeffcent value for our calculatons wth the four-dgt HS classfcaton, as t does not contradct the ams of the study and wll not dstort the results. RESULTS AND DISCUSSION The analyss s started wth the tradtonal Grubel- Lloyd ndcator (1975) n computng the degree of ntra-ndustry trade n relaton to the whole world. The calculaton of the Lloyd Grubel Index for the ndustres of Russa s economy (Fg. 1) has shown the ntra-ndustry specalzaton movements for the perod of n the Russa s trade n agrcultural products and foodstuffs wth the world s rest. Durng the analyzed perod, notceable fluctuatons of the ndex value were observed. Internatonal trade n agrcultural products s senstve to factors such as government polces, fluctuatons of tarffs and quota rates, mport restrctons for santary reasons and other factors. There s no any clear trend n the ndex value. Before 2004 the ndex ncreased, reachng ts maxmum and then started to declne steadly. The maxmum value of G-L ndex was 0.25 n 2004; the mnmum was 0.13 n To better understand the phenomenon under study we dstngush three types usng the method adopted by Abd-el-Rahman (1991), Greenaway et al. (1995), Fontagne and Freudenberg (1997). These types are nter-ndustry and ntra-ndustry trade n horzontally and vertcally dfferentated products (Tab. I). As can be seen n the Tab. I, nter-ndustry trade domnates n Russan foregn trade n agrcultural and food products. Intra-ndustry trade accounts for about a thrd of all trade flows. The results for Russa show that ntra-ndustry trade ncreased from 25.46% n 1996 to 40.5% n 2006 and decreased durng the followng years. We can observe a growth of the share of HIIT relatve to VIIT. Fluctuatons n the level of ntrandustry trade are prmarly related to changes n the structure of exports as well as changes n unt values of ndvdual products. Vertcal IIT s greater than horzontal IIT n Russa over the analyzed perod. Manly fluctuatons n the level of ntra-ndustry trade due to varatons of horzontal ntra-ndustry trade whle vertcal type of ntra-ndustry trade s qute stable. 0,3 0,25 0,2 0,15 Gruber-Lloyd ndex 0,1 0, : Gruber-Lloyd ndex for Russan foregn trade n agrcultural products and foodstuffs Sources: UN Commodty Trade Statstcs Database, author s calculatons (2013) I: Evoluton of ntra-ndustry trade n Russan foregn trade n agrcultural products and foodstuffs (as a percentage of total trade) Inter-ndustry One-way trade Intra-ndustry Horzontal IIT Vertcal IIT Sources: UN Commodty Trade Statstcs Database, author s calculatons (2013)

4 1296 Natala Ishchukova, Luboš Smutka Indvdual Regons Before analyzng Russa s ntra-ndustry trade wth ndvdual regons, we must say a few words n general about the development of trade n agrcultural products and foodstuffs n relaton to these regons. As can be seen n the Tab. II, at the end of 90s, most of Russan agrcultural exports went to EU countres. However, by 2010, CIS country had become the largest partner of Russa n terms of exports. They are followed by Asan and Afrcan countres. The terrtoral structure of exports has changed sgnfcantly durng the perod. If at the end of the 90 s most of the country s agr-food exports went to EU countres, n the last years the largest mporters of Russan agrcultural products and foodstuffs are Asan and CIS countres. However t should be noted that absolute value of export flows to EU was ncreasng durng the whole perod (n USD, n current prces). Its share declned due to the growth of exports to other regons. The share of export to Afrca n the total export value has ncreased extremely from 2.2% n 1998 to 20.3% n Ths was due to the growth of exports of wheat and barley, manly to Egypt and some other Afrcan countres. Durng the analyzed perod, the largest ncrease n the value of Russan agrcultural export was observed n relaton to Afrcan countres, the lowest n relaton to EU countres. Durng the analyzed perod there were no sgnfcant changes n the structure of Russan agrcultural mport. Agrcultural and food mports from EU are stll more than a thrd of total mports. II: Terrtoral structure of the Russan agrcultural export, % North Amerca CIS EU Asa South Amerca Afrca Others UN Commodty Trade Statstcs Database, author s calculatons (2013) III: Terrtoral structure of the Russan agrcultural mport, % North Amerca CIS EU Asa South Amerca Afrca Others Source: UN Commodty Trade Statstcs Database, author s calculatons (2013) 2: The values of Grubel-Lloyd ndex n relaton to ndvdual regons Sources: Comtrade database, author s calculatons (2013)

5 The Formaton of Russan Agraran Trade Structure: Inter-ndustry vs. Intra-ndustry Trade Actvtes 1297 IV: Fontagne and Freudenberg ndex of ntra-ndustry trade n relatons to ndvdual regons CIS EU Asa North Amerca South Amerca Afrca Sources: UN Commodty Trade Statstcs Database, author s calculatons (2013) Analyss of ntra-ndustry trade n agrcultural products n relaton to ndvdual regons begns wth the calculaton of the average value of the ndex. As can be seen n ths graph, the level of ntrandustry trade n relaton to ndvdual regons dffers sgnfcantly. Wth respect to the CIS we can observe the hghest ntensty of ntra-ndustry trade. We can also observe a sgnfcant and growng share of ntra-ndustry trade wth the CIS countres. Wth respect to Asa we can see a consderable jump n ntra-ndustry trade n 2004 and ts subsequent declne. There can be also observed a decrease n the share of ntra-ndustry trade wth EU countres (15.65% to 5.04%). These changes were caused, for example, by the growth of mports of such products as prepared or preserved fsh and cavar, fsh fllets and other fsh meat. Fontagne and Freudenberg ndex (FF) showed the followng tendences. From 1996 to 2012, there was an ncrease of the share of IIT n Russan nternatonal trade, from 52.8 to 68.4 per cent accordng to the FF n relaton to CIS countres. For the countres of North, South Amerca and Afrca the ndex s close to zero whch means that nter-ndustry trade domnates throughout the whole analyzed perod. In relaton to North Amerca the share of IIT vares from 1.93% n 1996 to 10.98% n These fluctuatons n the ndex are assocated wth a change n the pattern of trade between Russa and the countres of North Amerca. For example, the growth of ntra-ndustry trade n 2004 and subsequent years was due to the ncrease n exports of mlk products and preparatons of vegetables, fruts, nuts. It can be seen from the data n Tab. IV that almost whole trade flows wth Afrcan countres s the nter-ndustry trade, partcularly one-way trade (ether exports or mports). It can be logcally explaned by the dfferences n clmatc condtons for agrcultural producton as well as dfferences n factor endowments. Russa exports cereals to Afrca (manly feed wheat and barley). In recent years, sunflower ol export also ncreases. In turn, Afrca mports n Russa predomnantly fruts and vegetables. Durng the whole perod the share of ntra-ndustry trade does not exceed 2%.Growth trends were not observed. Based on these observatons t can be assumed that the geographcal remoteness as the man factor that reduces the level of ntra-ndustry trade. The sgnfcant share of ntra-ndustry trade was observed n relatons to CIS countres and Asan countres. So t makes sense to consder these two regons n more detal. CIS Countres CIS countres are mportant tradng partners of Russa n terms of both exports and mports. Economc relatons between Russa and these countres evolved over tme of USSR. These facts, as well as ther geographcal locaton determne ther sgnfcant share n Russan foregn trade. CIS country had become the largest partner of Russa n terms of exports. For example, n 2010 export to CIS countres accounted 36.6% of Russa s agrcultural exports and 11.3% of agrcultural mports. As we can see n the Tab. V, ntra-ndustry trade prevals n relaton to ths regon. The share of oneway trade n the structure of Russan trade wth CIS countres s extremely low. V: Evoluton of ntra-ndustry trade n Russan foregn trade n agrcultural products and foodstuffs n relaton to CIS countres (as a percentage of total trade) Inter-ndustry One-way trade Intra-ndustry Horzontal IIT Vertcal IIT Sources: UN Commodty Trade Statstcs Database, author s calculatons (2013)

6 1298 Natala Ishchukova, Luboš Smutka VI: Evoluton of ntra-ndustry trade n Russan foregn trade n agrcultural products and foodstuffs n relaton to Asan countres (as a percentage of total trade) Inter-ndustry One-way trade Intra-ndustry Horzontal IIT Vertcal IIT Sources: UN Commodty Trade Statstcs Database, author s calculatons (2013) In 2012, the followng tems were classfed as horzontal IIT: Meat and edble offal; Chocolate and preparatons; Bread, pastry, cakes, bscuts and other bakers wares. Examples of Vertcal IIT are Mlk and cream, concentrated or contanng added sugar or other sweetenng matter; Cheese and curd; Undenatured ethyl alcohol of an alcoholc strength by volume of less than 80% vol., etc. The share of nter-ndustry trade s declnng; the share of ntra-ndustry trade s ncreasng. Thus, at the begnnng of the perod, horzontal type of ntra-ndustry trade was domnated, but by the end of the perod the levels of horzontal and vertcal trade equalzed. Besdes the geographcal locaton, Russa and the CIS countres share smlar processes of economc transformaton and lberalzaton, the transton from a planned to a market economy, are stll ongong snce the collapse of the Sovet Unon. Ths determnes the smlar level of agrcultural producton development, smlar standards of lvng, det patterns (whch determne the demand for food products) etc. Asan Countres Asan countres are also mportant trade partners for Russan Federaton n term of trade n agrcultural products and foodstuffs. About 20 30% of Russan agrcultural exports and 15 20% of mports are assocated wth the Asan countres. Turkey, Vetnam, Thaland, Pakstan and Chna are the man Russa s trade partners n ths regon. Intra-ndustry trade, measured wth the Fontagne- Freudenberg method, accounts for around per cent of total trade n 1996 and per cent n The most mportant tems realzed under the vertcal type of ntra-ndustry trade are Fsh fllets and other fsh meat: Crustaceans; Bread, pastry, cakes, bscuts and other bakers wares. Vertcal ntra-ndustry trade flow ncludes such tems as Molluscs; Frut, nuts and other edble parts of plants; Frut juces (ncludng grape must) and vegetable juces. There was observed a reducton n the level of ntra-ndustry trade. The decrease mostly resulted from the reducton of trade n horzontally dfferentated goods (.e homogenous products wth the same qualty but wth dfferent characterstcs). These trends are caused by changes n the trade patterns n relaton to ndvdual commodty groups, such as reducton n mports of mlk and mlk products from Asan countres n recent years compared wth the end of the 90s etc. CONCLUSION The analyss presented n ths paper provdes a systematc decomposton of Russa s foregn trade n agrcultural products nto three trade types: nter-ndustry, ntra-ndustry n horzontally and vertcally dfferentated products, over the perod As t was found, nter-ndustry type of trade domnates n Russan foregn trade n agrcultural and food products. Intra-ndustry trade accounts for about a thrd of all trade flows. Analyss by regons showed that the hghest level of ntra-ndustry trade s n relaton to CIS countres. More than half of trade flows refers to the type of ntra-ndustry trade. Besdes the geographcal locaton, Russa and the CIS countres share smlar processes of economc transformaton and lberalzaton, the transton from a planned to a market economy, are stll ongong snce the collapse of the Sovet Unon. Ths determnes the smlar level of agrcultural producton development, smlar standards of lvng, det patterns (whch determne the demand for food products) etc. These results are consstent wth exstng lterature at the pont that the hgher the degree of ntegraton among countres and the low n trade barrers, the hgher ts IIT ndex. In relaton to Asan countres, the share of ntra-ndustry trade n lower but t exsts. However, there was observed a reducton n the level of ntra-ndustry trade n relaton to ths regon. Almost whole trade wth Afrcan countres s the nter-ndustry trade, partcularly one-way trade (ether exports or mports). It can be logcally explaned by the dfferences n clmatc condtons for agrcultural producton as well as dfferences n factor endowments. Russa exports cereals

7 The Formaton of Russan Agraran Trade Structure: Inter-ndustry vs. Intra-ndustry Trade Actvtes 1299 to Afrca (manly feed wheat and barley). In recent years, sunflower ol export also ncreases. In turn, Afrca mports n Russa predomnantly fruts and vegetables. In the trade flows between Russa and the countres of North and South Amerca nter-ndustry trade domnates throughout the whole analyzed perod. The share of ntra-ndustry trade s neglgble, close to zero. The ncrease n the share of ntra-ndustry trade occurred only n relaton to the CIS countres. Ths s evdent from comparng the ntensty level of the ntra-ndustry trade n the case of Russa s foregn trade n agrcultural products that ncrease n ntra-ndustry trade smultaneously wth the process of trade lberalzaton was not observed. Durng the analyzed perod, there are notceable fluctuatons of the ndex value. Internatonal trade n agrcultural products s senstve to factors such as government polces, fluctuatons of tarffs and quota rates, mport restrctons for santary reasons and other factors, the study of whch s beyond the scope of ths study. In the comng years, Russa s accesson to the WTO wll ncrease the level of ts ntegraton nto the world tradng system. Therefore t s reasonable to assume that changes n the level of ntrandustry trade wll be more sgnfcant. Acknowledgement Ths paper was prepared wth fnancal support of the projects Soco-economc practces of sustanable development n the new ndustralzaton. The project s founded by the Government of the Russan Federaton, Grant 074-U01 and conducted wthn the ITMO Unversty. REFERENCES RAHMAN, A. E Frm Compettve and Natonal Comparatve Advantage as Jont Determnants of Trade Composton. Weltwrtschaftlches Archv, 127: ALGIERI, B Trade specalsaton patterns: The case of Russa. Dscusson Papers 19. BOFIT- Insttute for Economes n Transton. AQUINO, A Intra-Industry Trade and Inter- Industry Specalzaton as Concurrent Sources n Internatonal Trade n Manufactures. Weltwrtschaftlches Archv, 114(2): ATURUPANE, CH., DJANKOV, S. and HOEKMAN, B Horzontal and Vertcal Intra-Industry Trade between Eastern Europe and the European Unon. Weltwrtschaftlches Archv, 135: BLANES, J. V., MARTÍN, C The nature and causes of ntra-ndustry trade: Back to the comparatve advantage explanaton? Weltwrtschaftlches Archv, 136(3): FALVEY, R. E Commercal Polcy and Intra- Industry Trade. Journal of Internatonal Economcs, 11(4): FONTAGNÉ, L. and FREUDENBERG, M Intra-ndustry trade: Methodologcal ssues reconsdered. CEPII Workng Papers, FONTAGNÉ, L., FREUDENBERG, M., and GAULIER, G A systematc decomposton of world trade nto horzontal and vertcal IIT. Revew of World Economcs, 142(3): GREENAWAY, D., HINE, R. and MILNER, C Country-Specfc Factors and the Pattern of Horzontal and Vertcal Intra-Industry Trade n the UK. Weltwrtschaftlches Archv, 130: GRUBEL, H. and LLOYD, P. J Intra-ndustry Trade: The Theory and Measurement of Internatonal Trade wth Dfferentated Products. London: Macmllan. GUSEV, M., Russa s ntra-ndustry trade n nternatonal exchange: major trends and growth potental. Studes on Russan Economc Development, 18(2): JAMBOR, A Country-specfc determnants of horzontal and vertcal ntra-ndustry agr-food trade of the Vsegrad Countres. FIW Workng Paper No HELPMAN, E. and KRUGMAN, P. R Market Structure and Foregn Trade: Increasng Returns, Imperfect Competton, and the Internatonal Economy. Cambrdge, MA: MIT Press. KRUGMAN, P. R Scale Economes, Product Dfferentaton and the Pattern of Trade. Amercan Economc Revew, 70(5): KOCYIĞIT, A. and ŞEN, A The Extent of Intra- Industry Trade between Turkey and the European Unon: The Impact of Customs Unon. Journal of Economc and Socal Research, 9(2): WANG, J., NUNO, C. and HORÁCIO, F Intra- Industry Trade n Agrcultural Products: The Case of Chna School of Economcs and Management. Workng Paper. Techncal Unversty of Lsbon. Contact nformaton Natala Ishchukova: shchukova@seznam.cz Luboš Smutka: smutka@pef.czu.cz