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# IIl. Characteristics of Repional Trade

Several statistical indices can provide useful insights concerning international trade trends. One such measure -- the so called "trade intensity" index has been used to determine whether the value of trade between two countries is greater or smaller than what would be expected on the basis of their importance in world trade. For example, Table 1 showed that approximately 40 percent of Egypt's exports go to the European Union. Is this above or below what would be projected on the basis of the two partner's relative size in global trade? Is Egypt's trade with other regional countries, about 14 percent of total exports, higher or lower than might be expected? Identification of bilateral combinations where trade is well below expected levels may often help focus attempts to identify and remove important trade barriers.

Table 9 shows 1992 "trade intensity" indices between selected individual ME countries' for which required UN data were available and various trading partners. The index may range between zero and infinity and has a relatively simple interpretation.<sup>9</sup> Values below unity indicate that the trade between two countries is lower than expected, while values above unity indicate it is relatively larger. A point to note is that, on average, ME countries absorb about 3 to 4 percent of global exports. Therefore, any country that had a higher share of total exports going to the middle-East could be thought of as having an above average tendency to trade with the region.

Table 9 suggests that most regional trade flows are not consistently lower than what should be expected while the exchange with Europe is larger in the case of Cyprus, Libya and Turkey. For example, Table 9 indicates that the share of Egypt's exports to region are about four times larger than what might be expected while the trade intensity indices for Syria, Oman and Jordan are even higher. The ratios for Japan are (with the exception of Israel) well below unity indicating a much lower than expected propensity to trade. Where does intra-regional trade originate and where does it go? As previously noted (see Table 7) this question is not easily answered since there are major gaps in some ME countries' official trade statistics. However, employing the information that exists in connection with the partner country trade data will allow one to produce some estimates. 'o Of course, when neither partner country has reported (i.e., 9The "trade intensity" index is defined as the shar of one country's exports doing to a partner divided by the share of world exports going to the partner. That is,

- (I) Tlij = 1xij/X,j -X./XJ]

where xij and xw, are the value of i's exports and world exports to j, X, is i's total exports and X, are total world exports. An index of more (less) than unity indicates a bilateral trade flow that is larger (smaller) than would be expected given the partner country's importance in world trade.

'°lmport statistics are normally reported on a cost-insurance-freight (c.i.f.) basis while exports are typically reported in terms of free-on-board (f.o.b.) values. As such, partner country import statistics would tend to overestimate the value of (missing) export statistics. The IMF often employs an adjustment factor of 10 percent to express import data to the same basis as export statistics.