How to Calculate Intraindustry Trade Share for the Product
Understanding the Formula
Intraindustry trade (IIT) measures the trade of similar goods and services within the same industry. The formula to calculate the Intraindustry Trade Share (IIT share) is:
IIT Share = 1 – |Exports – Imports| / (Exports + Imports)
Here, Exports and Imports refer to the total value of goods exported and imported in the same industry or product category.
Step-by-Step Calculation
- Identify Product Data: Gather data on exports and imports for the specific product or industry.
- Calculate the Absolute Difference: Find the absolute difference between the export and import values.
- Add Export and Import Values: Compute the total trade volume by summing exports and imports.
- Apply the Formula: Subtract the result of step 2 divided by step 3 from 1.
Example
Consider a product with $500 million in exports and $450 million in imports:
IIT Share = 1 – |500 – 450| / (500 + 450) = 1 – 50 / 950 ≈ 0.947 or 94.7%
Why It Matters
The IIT share is an essential tool for analyzing trade patterns, revealing the balance between export and import activities within industries. A high IIT share indicates significant two-way trade in similar goods, common in advanced economies.