Front Matter Page
Middle Eastern Department and Policy Development and Review Department
Contents
Summary
I. Introduction
II. Intra-Industry Trade Theory and Competitiveness Implications for Arab Countries
III. Methodology of Calculating the Intra-Industry Trade Index
IV. Intra-Industry Trade in the Arab Region
V. Determinants of Intra-Industry Trade
- Model Methodology
VI. Products in Intra-Industry Trade
VII. Conclusion
References
Tables
1. Intra-Industry Trade Indices in Manufactures: Total Trade
2. Direction of Trade: Intra-Industry Trade Indices in Manufactures, 1992-94
3. IIT Regression Fit: Deviations from Sample Standard Deviation
4. Intra-Industry Trade by Product Group
5. Intra-Industry Trade Indices in Manufactures for Selected Commodities
Boxes
1. Regression for Trade Orientation Derivation
2. IIT Regressions
Figures
1. Summary Regression Plots for Selected Arab and Sample Countries, 1994
summary
Arab countries today face prospects of trade liberalization as exemplified by the European Union Association Agreements. Whereas few short-term benefits are anticipated, increased competitiveness is expected to spur improvements to efficiency, stimulate foreign investment, generate growth possibilities, and present access to larger markets. Given that Arab countries face liberalization, this paper makes use of the Grubel-Lloyd intra-industry trade (IIT) index as an indicator of the degree of industrial specialization to study Arab countries’ ability to compete in a more open trade setting. The objective thus is to analyze how specialized Arab economies are relative to other countries at present, how well they might adapt in the future what determines the level of specialization and finally in what products Arab countries are competitive.
The results of the paper suggest that the Arab region overall does not have a highly advanced industrial base relative to other regions. In fact, the Arab IIT levels tend to be below expected values even in a cross-country regression using various determinants of IIT. Nevertheless, significant improvements in IIT levels over the last decade for most Arab countries and IIT indices in many manufactured products show signs of improved competitiveness and demonstrate Arab countries’ ability to compete in specialized commodities. Finally, the paper presents arguments favoring a more multilateral approach to trade liberalization over a bilateral agreement with the EU alone, and suggests that market-oriented and open economy policies could yield significant gains in the form of increased specialization and higher IIT levels.