A vertical index of direct competition in international trade: The case of CHINDIA and CARICOM

Abstract

This paper assesses the genealogy of competitive indices in international trade and theoretically develops a measure of export threat which estimates direct competition in vertical market segments. We identify the assumption of homogeneity in these export threat measures as a weakness that undermines accuracy. Hence, we develop a new measure of export threat, the direct intra-market threat (DIMT), which incorporates relative vertical and market share changes over time to accurately estimate a country’s direct threat to other exporters in a third market. We argue that the market segmentation method applied in complement to the DIMT estimate provides an all-encompassing methodology in the estimation of export threat, which we argue is superior to the Dynamic Index of Competitive Threat (DICT) and Direct Threat methodologies. The paper uses the case of China and India (CHINDIA) and the Caribbean Community (CARICOM) to assess the empirical estimates of the DIMT relative to DICT and Direct Threat over the period 2000–2021. Our study is motivated by a research gap in the estimation of the competitive threat posed by a large, diversified exporter on Small Island Developing States (SIDS).

KEYWORDS:

• China
• India
• trade
• vertical competition
• export threat

JEL CLASSIFICATIONS:

• F14
• F12
• C02

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Full members of CARICOM are: Antigua and Barbuda; Bahamas; Barbados; Belize; Dominica; Grenada; Guyana; Haiti; Jamaica; Monserrat; St. Kitts and Nevis; St. Lucia; St. Vincent and the Grenadines; Suriname and Trinidad & Tobago.

2 The Export Similarity Index (ESI) was presented by Finger and Kreinin (1979) and applied by Goldstein et al. (2006) to examine the impact of Chinese exports on Sub-Sharan Africa. Jenkins (2008) indicated that the ESI was utilized by the Inter-American Development Bank in an analysis where the Bank examined the degree of competition between Chinese exports, exports of selected Latin American Countries (Devlin, Estevadeordal and Rodríguez-Clare, 2006, Figure 5.1). Wu and Chen (2004) also used the ESI to analyze competition between China, Taiwan, South Korea and ASEAN. Schott (2006) utilized the ESI to examine export competition among Latin American and Caribbean countries, along with export competition among Asian and OECD countries. Vlasenko (2020) evaluated the effectiveness of the ESI in identifying if two countries are potential or immediate competitors in global trade.

3 These thresholds were applied in a sensitivity analysis approach similar to that of Jenkins (2008) in experimenting with an arbitrary threshold range of 1% to 4% to exclude miniscule exports of a country in the estimation of the DIMT.

4 271000: Petroleum Oils.

5 CARICOM’s export sectors are based on natural resources and unskilled labor. The region constrained by limited availability of skilled labor and technology required in the production of sophisticated goods.

6 270900: Petroleum Oils.

7 271000: Petroleum Oils.