An Analysis On The Intra-Industry Trade Of Mechanical And Electrical Products Across The Taiwan Strait Under The View Of Economies Of Scale

Intra-industry trade is defined as the goods in the same sector of industry are imported and exported simultaneously within the same period. In traditional international trade theory, it is comparative advantage of the factor endowments that cause division of labor and inter-industry trade. Krugman's new theory of international trade suggests that intra-industry trade is to occur in the countries of similar factor endowments. And the production of economies of scale contributes to the intra-industry trade.The analysis on the intra-industry trade theory by Krugman is based on cross-strait trade of mechanical and electrical industry. Based on Krugman's theory that economies of scale is the cause of intra-industry trade, this paper compares with the occurrence conditions of the relationship between intra-industry trade and factors proportion by using data on cross-strait trade, and then analyzes the limitations of theory by Krugman. In order to determine the development degree of economies of scale of mechanical and electrical industry cross-strait, the author uses Cobb-Douglas production function to estimate parameters. By a comparative analysis of average costs on mechanical and electrical industry in cross-strait, the author establishes the correlation analysis between intra-industry trade index and the average cost, so as to prove the correlation between these two. Empirical research has proved that economies of scale is an important factor of intra-industry, but not the only one. The difference with Krugman's theory is that intra-industry trade can still occur between countries with different factor proportion. It extends the explanation scope of intra-industry trade.After that, according to the determinants of intra-industry trade that put forward by different scholars, combined with the characteristics of mechanical and electrical industry across the Taiwan Strait, the author selects factors and builds a model to analyze the correlation between the intra-industry and determinants. The results prove that the size of the national economy, differences in factor endowments and differences in technological progress are negatively related to intra-industry trade, while the degree of demand homogeneity, industry economies of scale and level of direct investment as positive correlations with intra-industry trade. As the conclusion, the author analyses the problems of the cross-strait intra-industry trade and puts forward the countermeasures.