In this paper I will argue that keeping good chemical industry partnership with Sweden will benefit the world for years to come. Therefore further analyses and estimation of Intra-industry trade (IIT) share will be carried out from this perspective. Swedish trade flows for “Miscellaneous chemical products” group have a code of 598 according to SITC (Standard International Trade Classification) given on www.scb.se and 38 according to Harmonized System Codes Classification (Appendix A). In order to see how big the share of Swedish intra-industry trade is and what is the impact of it on the major world partners, we will use Grubel-Lloyd index for data including 14 years life-span for all countries with which Sweden is trading as well as with 15 most important trading partners. Sweden being one of the largest countries trading chemical products is supposed to show quite significant share of IIT both of horizontal and vertical intra-industry trade type. Intra-industry trade emerges if a country is engaged in parallel process of import and export of goods or services that are classified as belonging to the same sector. As empirical evidence shows IIT is most intensive in big scale manufactures to which we may refer chemical production in Sweden, the country which we may call “supertrading” and open.
Description of the Chemical Production sector and Its Impact on World Economy
Swedish chemical industry is well known internationally for more than 100 years. This production sector has outgrown most other domestic industries in Sweden for the last decade and accounts for around 9% of whole manufacturing sector. International trade in chemical sector is quite intensive which will be evident from the empirical evidence presented below and this intensity has dramatically increased over the last 10 years. This fact can be explained by the changes that occur recently in chemical industry; to be more exact to the large number of mergers and acquisitions which helped optimizing production. R&D and increase international trade flows. One of the main reasons for these changes and companies’ cooperation is spreading of large-scale production which improves competition; decreasing production costs and evolving of scale economies. Today’s chemical sector in Sweden is represented mainly by 50 plants which belong to around 20 large companies clustered in production intensive regions like Malmö, Göteborg and Stockholm area. Restructuring of chemical sector in Sweden (large number of mergers and acquisitions) occurred in order to capture the best advantages of large-scale production; important part of this process was also increasing of Swedish export of chemical goods, lessening input costs and improving profitability of the companies. For most miscellaneous chemical products today there is mainly one big manufacturer per one specific chemical product group. Market structure in chemical sector is represented by a sufficient number of foreign production companies (mainly from Nordic region) and giant domestic companies like Aga Gas and Perstorp which acquired actively a number of companies abroad to be better positioned on European and non European markets. A big share of the market belongs to such newly established Swedish-foreign giants like Akzo Nobel which moved HQ to the Netherlands and Pharmacia & Upjohn which has HQ in London.
If we take the volume terms of international trade and the way it impacts trading with partners all over the world we may say that in the last 15 years trade has increased and its intensity is very high. Miscellaneous chemical products are produced in Sweden and traded all over the world. According to the statistics from www.scb.se an active trade takes place with around 250 countries of the world. The amount of profit from export of miscellaneous chemical products has risen from 2 896 923 SEK in 1995 to 8 111 699 SEK in 2008. Overall amount of export trading of 38th chemical product group during 14 years analyzed life span equals to 75 077 772 SEK which is an impressive share of trade compared to other chemical product groups. The amounts of imported goods within miscellaneous chemical product group has also increased, mainly to the fact that many domestic Swedish companies (like former Nobel Industry) has become multinationals and moved some of the production chains abroad either due to environmental or tax legislation where intermediate goods are produced and imported to Swedish plants to produce final goods. E.g Most of ethylene oxide gradient is imported to Sweden by Akzo Nobel from other plants abroad and is used by Borealis plant located in Stenungsund to produce final good – polyethylene which is then to 80% is exported to other countries. This fragmentation process is of vertical intra-industry trade type which has become quite strong in Sweden lately when “there are simultaneous exports and imports of goods classified in the same sector but at different stages of processing” (P. Krugman, 1994). It helps to split the whole of production chain into different stages and maximize profit. On the basis of the empirical data received from the Swedish Statistical Database and analyses of the whole chemical sector and one given product group we can predict that the magnitude of intra-industry trade in Sweden is quite large as well as an impact of chemical industry on global trade. However the latter we need to be considered in more detail.
Analysis of data computations
How large is the share of intra-industry trade in the aggregate trade flow in the product group? (Sweden’s trade with the rest of the world). In order to analyze the magnitude of IIT for miscellaneous chemical product group we need to employ the Grubel-Lloyd index for a disaggregated level of classification for the chosen product group:
(G-L index)
Results are presented appendices in pivot tables and diagrams at the end of the paper. On the basis of this information we can get the first results on magnitude of trade flows.
IITir = 1- (75 077 772 – 66 983 446)/( 75 077 772 + 66 983 446) = 1 – (8 094 326/142 061 218) IITir =0.94;
The index we received shows explicitly that export value is very close to import value (export however is greater) indicating that there is intra-industry trade for miscellaneous chemical products in Sweden and international trade is highly intensive which directly influences profitability of Swedish trading partners. This is not the pure-intra-industry trade since the value of the equation does not exactly equals to 1 but is very close to it. It means that the amount exported is only a bit larger than the amount of imported goods for the analyzed product group. We also see that the share of IIT for the miscellaneous product group has dramatically increased over time. It can be explained by the fact that the importance of chemical sector for Swedish economy has increased, globalization processes rooted deeply in Swedish economy giving birth to the phenomenon of post industry society called multinational corporations. If we take the statistical data showing IIT in tones (Appendix B), we will get a similar result but with a tendency for weaker intra-industry trade.
IITir = 1- (|3 906 249 - 6 634 986|)/ 10 541 235 = 1 – ( 2 728 737/10 541 235) = 0.74
As we see there is also the presence of intra-industry trade for the chosen product group however in this case index is lower than for SEK result. It can be explained by type of trade which is vertical intra-industry, i.e. a greater amount of intermediate goods, components are imported to Sweden from international partners for producing final goods. Here the process of “splitting up value chain” (J. Mossberg, 2013) is taking place. For the chemical industry it makes sense since environmental legislation in Sweden is severe and taxes are high and many intermediary production stages involving dangerous for health and environment gradients were transferred to other countries with less strict production rules.
Does the share of IIT in bilateral trade flows differ between the most important trading partners in the product group?
Conclusion and Future Studies
In this paper we have tried to analyze what is a status of chemical industry in Sweden and what benefit can gain partnership with Sweden in global respect. Given sufficient amount of data on the intra-trade relations between Sweden and other countries we see that this trade is very intensive since chemical manufacturing in this country is very sophisticated and developed. G-L index for import and export trade flows in SEK is almost close to 1 which proves the existence of parallel export and import of goods and services within the given sector. Empirical evidence also showed statistically that the share of intra-industry trade has increased over time since 1995 which is a typical process for open “supertrading” economies like Sweden who is an active partner for many developed countries and is an active member of international trade network. Results definitely show that most of the horizontal industry trade happens between Sweden and such countries as Japan, UK, Norway, Italy, Denmark, and Austria which can be called developed countries with highly secure partnership capabilities. With the rest of the countries, Sweden cooperates on the basis of the vertical trade assumptions – USA, Switzerland, Spain, Belgium, India. This partnership shows that mentioned countries have extensive production chains and are more eager to export their goods rather than import these goods from Sweden. Moreover, from analyzing given data we can make conclusion that the trade between Sweden and such countries as France, Germany, the Netherlands is based on the assumptions of the horizontal trade of the low priced chemical products which can be very likely trade of the specialized components, which are respective country’s comparative advantage. We can notice that market structure in chemical sector is represented by a sufficient number of foreign production companies and giant domestic companies like Aga Gas and Perstorp (Mossberg, 2013, p.24), which acquired actively a number of companies abroad to be better positioned on European and non European markets. It means that some Swedish companies become multinationals and moved some of the production chains abroad either due to environmental or tax legislation where intermediate goods are produced and imported to Swedish plants to produce final goods thus organizing a substantial global partnership group. If Swedish Government tries to more efficiently push up fragmentation process of vertical intra-industry trade type which will help to split the whole of production chain into different stages, it will drastically maximize profit for both Sweden and its trading partners. This perspective can give food for future researches and analyses while we see that the global world can highly benefit from a tight partnership with one of the most developed economies of the world making whole industry more efficient and profitable both for Sweden and globally.
Works Cited
Bowen H, Hollander A., Viaene J.M. Applied International Trade Analysis, BHV, 1998
EconomyWatch Content (2010). Sweden Trade, Exports and Imports. Retrieved from http://www.economywatch.com/world_economy/sweden/export-import.html
Krugman P.R. Rethinking International Trade, the MIT Press, Cambridge, Massachusetts, London, England, First MIT Press paperback edition, 1994
Mossberg J. (2013). Chemical Industry Companies in Sweden. Sweden: SP Technical Research Institute. Retrieved from www.vinnova.se/upload/EPiStorePDF/va_13_01.pdf
Palm V., Carlsson A. Chemical product indicators by industry – fossil fuels, cement and other chemical products classified as hazardous to health or environment 1996-2001, Statistics Sweden, 2003
Statistics. (n.d.) In Swedish Statistical Database, Retrieved from www.scb.se
Appendix A
Harmonized System Codes (HS Code)
Appendix B
This table is made for IIT flows for dimensions SEK and Tones
Appendix C.
Diagram 3.1 Amount of Export and Import from 1995-2008 life spans in SEK
Diagram 3.2. Amount of Export and Import from 1995-2008 life spans in tones
Chart 3.2. Distribution of the G-L index in SEK and tones.
Index for the IIT between SE & 15 most important trading partners
Appendix D
Trade partners of Sweden, export, import volumes, G-L index
Appendix E.
Diagram 3.3. Bilateral trade share distribution, SEK. Diagram 3.4. Distribution of import and export, SEK
Diagram 3.5. Bilateral trade share distribution, tones. Diagram 3.6. Distribution of import and export, ton
