South African exports under AGOA
The Trade Intensity Index
Do these two countries trade more with each other than their size alone would predict?
Raw trade values mislead. A large flow between two large economies can still represent a weak relationship, and a modest flow between two small ones can represent a very strong one. Size swamps everything.
The trade intensity index corrects for that. It compares the share of one country’s exports going to a partner against that partner’s share of world imports. Above one means the relationship is more intense than the countries’ sizes alone would predict. Below one means less.
It is the difference between asking how much two countries trade and asking whether they trade unusually much.
What it cannot do
It measures the strength of a relationship and says nothing about why it is strong. Colonial history, a shared language, a single dominant commodity and a well run border post all push the index the same way.
The equation
Tij = ( xij / Xi ) ÷ ( mj / Mw )
- xij / Xi
- the share of country i’s exports that go to j
- mj / Mw
- country j’s share of all world imports
- Tij > 1
- they trade more than the two countries’ sizes would predict
- Tij < 1
- they trade less
The top line is what happens. The bottom line is what you would expect from size alone. Dividing one by the other is the entire idea.
Further reading
- WTO and UNCTAD (2012). A Practical Guide to Trade Policy Analysis. free Read it.The competitiveness chapter sets out this index and its relatives.
From An analysis of South Africa exports to the United States under the African Growth Opportunity Act, MCom in Management Practice (Trade Law and Policy), University of Cape Town, 2015. Read it in OpenUCT.