The Relationship Of Intra-Industry Investment And Intra-Industry Trade Of China

FDI and trade are two major forms of international economic activities. The factors that influence intra-industry investment and intra-industry trade are similar. Intra-industry investment is more inclined to occur in the countries which have high level of intra-industry trade. Moreover, some scholars believe that intra-industry investment is the extension of intra-industry trade. However, in China, there are few researches focus on the relationship between intra-industry investment and intra-industry trade. In my opinion, clarifying the inner relationship between intra-industry investment and intra-industry trade is beneficial for improving the development of industry. Firstly, it helps to improve foreign investment policy of every industry, including improving the policy of absorb and use of foreign investment, and making proper policy to guide investment abroad. Secondly, it helps to adjust the trade policy and to promote trade balance. After all, it promotes the development of industries.In the aspect of theories, this paper arranges domestic and foreign literatures of intra-industry investment and intra-industry trade, concludes the relationship between FDI and trade, then establish a methodology, which is based on FDI-Trade Effect theory, to explain the inner reason of the relationship between intra-industry investment and intra-industry trade. In the aspect of empirical study, this paper, from the perspective of industry and economy as a whole, using 2004-2014 annual intra-industry investment index and intra-industry trade index, and also using the test methods like correlation analysis, co-integration test and Granger causality, establishes a double-log model of intra-industry investment and intra-industry trade. Firstly, I respectively discuss the relationship between intra-industry investment and intra-industry trade in three industries---agricultural industry, manufacturing industry and service industry. Secondly, using agricultural industry, manufacturing industry and service industry as a cross section, I build up a panel data model of intra-industry investment and intra-industry trade of the whole economy. Finally, I move further to discuss the FDI-Trade Effect of agricultural industry, manufacturing industry and service industry. In this step, I find out how FDI inflow and outflow influence import and export in every industry, then explain why intra-industry investment influence intra-industry trade.The result shows that:(1) The intra-industry investment and intra-industry trade of Chinese economy, agricultural industry, manufacturing industry and service industry respectively have a significant substitution relation.(2) Agricultural industry has trade deficit and direct investment deficit. The substitution relation between intra-industry investment and intra-industry trade mainly result from the Reverse Import Effect generated by investment abroad. The investment abroad may mainly focus on efficient seeking and resource seeking.(3) Manufacturing industry has trade surplus and direct investment deficit. The substitution relation between intra-industry investment and intra-industry trade mainly result from the Reverse Import Effect generated by investment abroad. The development of China's economy and the raising of labor cost force manufacturing companies to move to South-east countries, in which the labor cost is much lower. They produce products in foreign countries and sell them back to China.(4) Service industry has a trade surplus all the time. But in the direct investment, it is different. From 2004-2007, it has direct investment deficit. From 2008-2014, it has direct investment surplus. The FDI outflow of service industry brings the Export Cause Effect to trade, prompting the export of intermediate. Finally, basing on the conclusion of my study, I make some suggestions in the aspect of trade and foreign investment policy.(1) In agricultural industry: combine the stimulating foreign investment policy(both using foreign investment and investing abroad) and protective trade policy to improve the level of using foreign investment as well as the level of investing abroad.(2) In manufacturing industry: prompt it to upgrade to intellectualized manufacturing industry. Government should raise the access threshold of manufacturing FDI, encourage high-tech foreign companies to invest in China, and reduce the high pollution-intensive companies' investment. What is more, on the premise of not violating the WTO's import duty clause, government should increase the import duty of high-tech intensive productions.(3) In service industry, offer better conditions for investing abroad. Government can offer more to stimulate investment abroad, such as simplifying the examination, reducing the tax, offering subsidy, building the information platform as well as giving financial support.