Foreign direct investment and China's bilateral intra-industry trade with Japan and the US

摘要

This paper analyzes the dynamic changes of China's intra-industry trade with its major trading partners, Japan and the US, from 1980 to 2004. The estimated intra-industry indexes demonstrate that, while shares of China's intra-industry trade with both Japan and US rose substantially, its intra-industry trade with Japan increased to 34 percent of the overall trade in 2004, considerably larger than 10 percent with the US. The Sino-Japanese intra-industry trade concentrated in electrical and machinery sectors and accounted for 52 and 46 percent of the total trade in those sectors, respectively. On the other hand, it is in chemical and food sectors where intra-industry trade represented a relatively large proportion of Sino-US trade. In addition, the paper investigates to what extent that foreign direct investment from those two countries promoted their bilateral intra-industry trade with China. The empirical results show that, Japanese direct investment performed a significant role in enhancing the bilateral intra-industry trade. However, it finds no evidence that the US direct investment contributed to the growth of the Sino-US intra-industry trade.