Determinants of Intra- Industry Trade between Zambia and it’s Trading Partners in the Southern African Development Community (SADC)

Abstract

Intra-Industry trade (henceforth IIT) has generally been perceived to be a feature of the industrialized countries. As the past few years have seen a rapid increase in Zambia’s trade with its trading partners in the Southern African Development Community (SADC), trade statistics reveal that a substantial part of such intra- SADC trade is in fact of the IIT form. This study seeks to establish the extent of IIT between Zambia and its trading partners in the SADC region and to identify the determinants of IIT at this level.
Using a modified gravity model in a panel data framework for the 1998-2006 period, the estimation results from the Feasible Generalized Least Squares in the random effects model evaluates the existence of IIT between Zambia and its trading partners in the SADC. The empirical results reveal that gross domestic product, dissimilarities in per capita income, transportation costs (distance and common border) and colonial ties (common language) are significant factors explaining IIT between Zambia and its trading partners in the SADC. The results also reveal that IIT between Zambia and its trading partners in the SADC is positively determined by GDP, distance, and dummies for common border and common language while dissimilarities in per capita income (DPCI) depresses it.

Keywords: Intra-Industry Trade, Gravity Model, Feasible Generalized Least Squares in the Random Effects Model, Panel Data, Zambia, SADC Countries.