In the example we worked on in class, Japan's Grubel-Lloyd index in autos was highest with ...

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BlackTom AI · Accepted Answer

The Grubel–Lloyd index measures intra‑industry trade; it is defined as GL = 1 − |X − M|/(X + M) (equivalently GL = 2·min(X,M)/(X + M)). Values range from 0 (pure inter‑industry trade: only exports or only imports) to 1 (perfectly balanced two‑way trade). The index is highest when exports X and imports M for a sector are nearly equal.

Step‑by‑step reasoning:
1. Write the formula: GL = 1 − |X − M|/(X + M). This highlights that the numerator |X − M| captures the trade imbalance and the denominator X + M scales it.
2. Observe that GL increases as |X − M| decreases; maximal GL = 1 occurs when X = M.
3. Apply this to the class example: Japan’s auto trade with South Africa showed closely matched exports and imports compared with Japan’s auto trade with the other partner countries. For illustration, if Japan exported 1,200 auto units value and imported 1,100, then |X − M| = 100 and X + M = 2,300, so GL = 1 − 100/2,300 = 1 − 0.0435 = 0.9565 — a very high GL, indicating strong intra‑industry trade.
4. By contrast, partners with lopsided flows give much lower GL. For example, if with country A Japan exported 3,000 and imported 500, GL = 1 − 2,500/3,500 = 0.2857, showing predominantly inter‑industry trade.

Why the correct answer is correct:
- South Africa yielded the most balanced two‑way auto trade with Japan in the class dataset, producing the highest GL value because exports and imports were closest in magnitude.
Why other options are incorrect:
- Other trading partners had larger absolute differences between Japan’s auto exports and imports, leading to lower GL values; therefore they cannot be the maximum.

Conclusion: Given the GL formula and the relative balance of Japan’s auto exports and imports by partner in the example, the highest Grubel–Lloyd index was with South Africa, which matches the provided answer: South Africa.

In the example we worked on in class, Japan's Grubel-Lloyd index in autos was highest with ...Single choice

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