Determinants of Intra‐Industry Trade of a Least Developed Landlocked Country: A Case of Nepal's Exports to South Asia

ABSTRACT This study provides the first granular analysis of intra‐industry trade (IIT) in Nepal using six‐digit harmonised system (HS) product‐level data (2013–2022), addressing a critical gap in South Asian trade literature. By applying the Grubel–Lloyd Index (GLI) to Nepal's top 62 export products, we precisely differentiate between horizontal IIT (HIIT) and vertical IIT (VIIT), overcoming aggregation bias inherent in prior studies reliant on one, three and four‐digit SITC classifications. Our findings reveal significant IIT levels (over 40% in key categories) for differentiated goods, such as dentifrices, medicaments, plastics and stainless‐steel kitchenware. Panel regression results from an augmented gravity model (AGM) highlight manufacturing value addition as a key driver of IIT, while GDP dissimilarity and tariffs hinder it. Using six‐digit HS data not only refines Nepal's IIT measurement but also uncovers actionable insights for leveraging VIIT (e.g., cost‐efficient intermediates) and HIIT (e.g., herbal products) to diversify exports. These results challenge Nepal's reliance on comparative advantage, advocating for dual strategies to enhance product differentiation and regional value chain integration. The study's methodological innovation, high‐resolution data paired with VIIT/HIIT thresholds, offers a replicable framework for analysing IIT in landlocked developing economies, where disaggregated trade dynamics remain underexplored.