The Empirical Study Of Intra-industry Trade

Along with the economic globalization, China's international trade hasdeveloped quickly and has been the dominant factor of economic growth. Then,which principle a trade participant followed has become crucial. Traditional tradetheory made the conclusion that each country should take part in international labordivision and trade according to comparative advantages. While economists found astrange trade phenomenon after the second war: a country will export and importproducts within the same industry. It was called intra-industry trade (IIT). With theglobalization of economy and the liberalization of international trade and investment,intra-industry trade has developed quickly, and has become an important part ofinternational trade. However, the traditional trade theory didn't explain the situationof post-war international trade soundly. Therefore, it is necessary to consummate thesystem of international trade theory.Since the beginning of reform and opening up in 1978, China's internationaltrade developed fast, and has become the third trade country in the world. During thistime, intra-industry trade has been improved significantly. On the other side,intra-industry trade belongs to the across domain of Industrial Economics andInternational Trade, and is an excellent indicator to reflect an industry's internationalcompetitiveness and international status of a country or a region. Thinking about theimportant position and the particular perspective, it is necessary for us to make acomprehensive and systematic study of development and state of China's currentintra-industry trade. And it is conducive to face with many problems such as thetransformation of the mode of economic growth, the optimization and upgrading ofstructure, the transition of the model of trade development, and the impact of WTOaccession. Based on this situation, this paper is written. And it can be divided into 8chapters.Chapter 1 is the introduction. It introduced research background, researchmethods, innovations and limits. Based on the important position and the particularperspective, we focus on the development and state of China's intra-industry trade.Chapter 2 introduced the measure of intra-industry trade. We adopted Grubel &Lloyd's viewpoint, and then disproved the opinion that intra-industry trade was a falsestatistics. After comparing with all kinds of measurement methods, we adopted Grubel & Lloyd's method, Greenaway & Milner's method and Giuseppe Celi'smethod. Following Greenaway & Milner's method, we can divide intra-industry tradeinto horizontal intra-industry trade and vertical intra-industry trade. Using GiuseppeCeli's method, we disentangled vertical intra-industry trade into up-verticalintra-industry trade and down-vertical intra-industry trade. And this insured theveracity of our study.Chapter 3 analyzed determinants of the intra-industry trade. Based on productionof added value and state of international division, intra-industry trade can be dividedinto horizontal intra-industry trade and vertical intra-industry trade, and they areaffected by different factors. According to monopolistically competitive market model,imperfectly competitive market model and the reciprocal dumping model, horizontalintra-industry trade will be influenced by many factors such as product differentiation,scale economies and market structure. While following neo Heckscher-Ohlin modeland imperfectly competitive market model, vertical intra-industry trade will beaffected by comparative advantage, foreign direction investment. Although thetheoretical work on IIT was relatively well-established, it does not provide anintegrated clear-cut model on which all empirical studies can be based. This has ledempirical studies to take an eclectic approach to capture features of different theoriesthrown together in a multiple regression equation. After reviewing positive researchpapers on intra-industry trade, we divide determinants into country characteristics andindustry characteristics. The former refers to the difference in per captia income, thedifference in factor endowment, the level of development, etc. The latter meansproduct differentiation, scale economies, market structure and FDI, etc. This is thefoundation of our quantitative analysis.Chapter 4 analyzed economic affection of intra-industry trade. Compared withinter-industry trade, non-price competition was more severe and consumers could getmore benefits. At the same time, the producers could increase output and reduceproduction cost. Further more, the development of intra-industry trade wouldaccelerate economy with scale economy, learning by doing, human capital andinnovation of corporation system, etc. Because of incomplete market, governmentcould implement strategic trade policy to support the growth of its strategic industriesand enhance its competitiveness in the international market. But with strongconstrains, its implementation existed quite dispute.Chapter 5 focused on analysis of the intra-industry trade indicators. Using many different indicators, we analyzed China's current international trade, especiallyintra-industry trade. We found China's intra-industry trade became a dominant part ofinternational trade, but it consisted almost entirely of vertical intra-industry trade,especially down-vertical intra-industry trade. Because of industry characters, thefourth industrial products had different trade patterns: machinery and transportequipment (SITC 7) and manufactured goods classified chiefly by material (SITC 6)had higher intra-industry trade, while chemicals and related products (SITC 5) andmiscellaneous manufactured articles (SITC 8) reflected inter-industry trade pattern.And then, we analyzed central products' trade pattern and further more compared thedifference of intra-industry trade between China and important trading partners suchas Japan, Korea and USA.Chapter 6 made quantitative analysis on the horizontal intra-industry trade andvertical intra-industry trade of China based on industry characters. According to theabove theoretical models and research papers, we proposed our hypotheses. And then,we did fixed effects estimation using panel data from 2001 to 2005. The conclusionsshowed that product differentiation and scale economies could improve China'shorizontal intra-industry trade, and product differentiation could have negative effecton vertical intra-industry trade, and China's market economic reform could enhanceboth horizontal intra-industry trade and vertical intra-industry trade. But we foundFDI would block China's horizontal intra-industry trade. The result was contrary toour anticipation.Chapter 7 also made quantitative analysis, but based on country characters.Reviewing the above theoretical models and research papers, we proposed ourhypotheses and then made fixed effects estimation using panel data from 2001 to2005. We draw a conclusion that the difference in per captia income blocked China'shorizontal intra-industry trade but improved the development of vertical intra-industrytrade, and distance and culture difference had a negative effect on China's horizontaland vertical intra-industry trade, and system of production in Eastern Asia. In addition,we also draw the same conclusion that FDI prevented China's horizontalintra-industry trade.The last is the conclusion and the summaries of related policy advices.