The Home Market Effects Estimation Of Electromechanical Products Trade Between China And The EU

Chinese electromechanical products with the EU has been interpreted as a comparativeadvantage of cheap labor costs, but this advantage cannot be sustained。In recent years, China’slabor costs continue to rise,"labor shortage" phenomenon has occurred frequently, in addition，thecheap labor export-led strategy also led to a number of trade friction between China and the world.If we continue to rely on traditional comparative advantage in cheap labor, the sustainabledevelopment of electromechanical products trade between China and the EU will be difficult tomaintain, so whether there is a new source of competitive advantage? The ‘home market effect’becomes a new hot spot in the field of international trade theory after it is defined as an economicphenomenon by scholars during the research of international trade。After2006, it graduallyreceives attention of domestic scholars provides a new way of thinking to explore new advantagesin China’s foreign trade. Whether there is a home market effect in electromechanical productsbetween China and the EU trade? With this question, this paper researches it.Firstly, this paper teases and summarizes the home market theory;then describes theelectromechanical products trade between China and the EU, and makes a further detailed analysisabout9categories of electromechanical products trade between China and the four representativemember states of the EU：Germany, Britain, France and Italy; after that，the paper learns from thegravity model of Schumacher (2003), selects the1992-2012trade data on electromechanicalproducts between China and Germany, Britain, France, Italy, uses Eviews6.0softwarefor dataprocessing and panel data estimation method to estimate the home market effect. Finally, somesuggestions based on empirical results are given. The main conclusions are:First, in the71-79class of electromechanical products trade between China and Germany,Britain, France, Italy, The results show that there exists the ‘home market effect’ in every countryin class71,72,74,75,76and77.There are no home market effects in the73th class ofelectromechanical products in Germany, France and Italy, in the78th class of electromechanicalproducts in Germany and the United Kingdom, in the79th class of electromechanical products inFrance and Italy. Therefore, on the whole, there exists the ‘home market effect’ inelectromechanical products trade between China and the EU, the ‘home market effect’ becomes the most important source of comparative advantage when China exports electromechanical productsto the EU.Second, the cross-product term of home market effect and industry openness is significantlypositive in the model,, indicating that in the electromechanical products trade between China andthe EU, high degree of openness has a positive positive role in promoting the home market effect.Improving Openness of China’s electromechanical industry can strengthen the home market effectand promote China’s export of electromechanical products to the EU.