BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
Foreign direct investment and China's bilateral intra-industry trade with Japan and the US
Abstract: This paper analyzes dynamic changes of China's
intra-industry trade with its major trading partners, Japan and the US,
from 1980 to 2004. It also investigates to what extent foreign direct
investment promoted intra-industry trade. The empirical results show that,
while shares of China's intra-industry trade with both Japan and U.S rose
substantially, its intra-industry trade with Japan has reached 35 per cent
of the overall trade, considerably larger than 10 per cent with the US.
Sino-Japan intra-industry trade concentrated in the electrical and
machinery sectors accounted for 52 per cent and 46 per cent of overall
trade respectively. On the other hand, it is in the chemical and food
sectors where intra-industry trade represented a relatively large
proportion of Sino-US trade, 50 per cent and 30 per cent accordingly in
each sector. In addition, the analysis indicates that Japanese direct
investment in China performed a significant role in enhancing
intra-industry trade between Japan and China. However, it found no evidence
that the US direct investment in China contributed to the growth of the
bilateral intra-industry trade between the two countries.
Keywords: intra-industry trade; FDI; China; (follow links to similar papers)
JEL-Codes: F14; F23; (follow links to similar papers)
30 pages, January 16, 2007
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