Multi-National Corporation’s Intra-Firm Trade And FDI

The most direct manifestation of Multi-National Corporation (MNC)’s global layout is the worldwide rapid expansion of foreign direct investment (FDI) associated with the rapid growth of international trade. Since the reform and opening up, China’s FDI inflow and international trade also shows double growth. The increasing trend of FDI and international trade shows that there seems to be a link between them. We infer that, following the influx of MNCs and foreign investment enterprises, one country will have a development on MNC’s intra-firm trade (IFT) by the promotion of FDI inflow, and then promote the rapid expansion of the country’s import and export.From the point of view of research, most of previous studies were focus on the relationship between foreign trade and FDI, and the research on MNC’s IFT and FDI is relatively less. Especially due to the limitation of data, the empirical and case study on the micro level of the relationship between IFT and FDI is even more less. Moreover, most of previous studies were the study of the IFT in American MNCs, there is no micro level study on the IFT made by MNCs invested in China.In the view of all above condition, This paper tries to use Antras (2003), carpenter (2005), Feenstra and Hanson (1996) and the related research results, constructing the theoretical model of the relationship between IFT and FDI, and the IFT data from five MNCs invested in China is carried on the analysis.The basic idea of this paper is, first set up a theory model, study the relationship between FDI and IFT. According to the research purpose of this article, this part studies the relationship between the fixed cost, FDI and IFT, then the relationship between the trade cost, FDI and IFT, and finally according to market demand changes, dynamic correction is done on the theoretical model, to study the relationship between the size of the market, the FDI and IFT, get the MNC’s IFT and FDI relationship curve. After the research on micro level, we use historical analysis method combining with inductive reasoning practical of research, studying the development background of the MNCs invested in China, analyzing the process of the market, the Chinese market demand scale, fixed cost and trade cost change trend. Finally, we use the method of case analysis, to verify the relationship between the IFT and FDI of MNCs invested in China.The whole thesis consists of six chapters. The first chapter is the introduction, which mainly introduces the research background, research significance, research ideas and methods, research framework, research innovations and shortcomings. Based on the China FDI inflows promote the development of international trade, we introduce the significance of this study, illustrate the importance of IFT enterprises from the perspective of MNC. The second chapter is the theory and literature review, mainly introduces the current research progress from the following several aspects, one is the relevant theories about international trade; two is the main theories about FDI of MNC; the three is to introduce the new trend of integration of international trade and FDI theory--the theory of international division of production. The third chapter is the theoretical model of this paper, research on the relationship between the IFC and FDI theoretically. At the same time, the influence of the market size, fixed cost and trade cost is considered in the model. The fourth chapter is the reality basis for the development of IFT, using trend analysis of market size, fixed cost and trade cost and other factors’data of China, which lays a foundation for the following case analysis. The fifth chapter is the the case study, case analysis by the data from five MNCs invested in China, an empirical test has been done on the relationship between IFT and FDI. The sixth chapter is the conclusion of previous theoretical and empirical part of the summary, and puts forward some suggestions.Through theoretical analysis and case study, this paper obtained the following conclusions:first, there is a significant positive relationship between IFC and FDI, the IFT increases with the inflow of FDI. Second, with the decline in the fixed cost and trade cost, the MNCs prefer to vertically integrated intermediate products to the developing countries for the cost advantage, so as to promote the increase of IFT. Third, with the demand expansion of the market in developing countries, market oriented FDI tends to increase, the MNC is more inclined to direct assembly and sales in the developing world, the IFT increase as well. Fourth, if the comprehensive change on net effect of fixed cost, trade cost, market demand scale is positive, then the relationship curve for long-term IFT and FDI is a dynamic increasing curve; if the comprehensive change on net effect of fixed cost, trade cost, market demand scale is negative, then in relation to each other, the long-term curve of IFT and FDI is a dynamic reduction curve. Fifth, the China data analysis found that, at present China overall market steadily, China has become a developing market economy country, and the scale of market demand of China gradually expanded, fixed cost and trade cost is gradually declining, conducive to attracting FDI inflows, and promote the development of internal trade of MNCs. Sixth, through the case study, the MNCs intend to make better use of China’s resource endowments, just like labor costs, fixed and trade cost advantages, actively invest and set up factories in China, realize the international division of product, so as to promote the development of IFT of the MNC.