Empirical Research On Intra-Industry Trade In China

Verdoorn found intra-industry trade (ⅡT) for the first time when researching on Benelux Customs Union in the 1960s. The find ofⅡT has flung down a challenge to the traditional Heckscher-Ohlin Trade Theory which based on constant returns to scale and homogenous product. The Theory of Imperfect Competition which is represented by Intra-Industry Trade Theory has become one of the frontier issues of international trade theories. Along with the deep development of economic integration and trade&investment liberalization, intra-industry trade has grown rapidly in the world and its proportion in the international trade has been over sixty percent. NowⅡT not only exists in the trade between developed countries but also exists in the trade among developed countries, newly industrialized countries and developing countries widely. Scholars have found that the development ofⅡT has played an important part not only in speeding the process of industrialization but in elevating the level of export products and promoting of international division status by theoretic and empirical study. What’s mort, the development ofⅡT has also play a pivotal role in cushioning the blow of open-door economics to domestic production elements markets.The value of China’s foreign trade has kept growing since reform and opening-up especially after the entry into WTO in 2001. Along with China’s sustainable and speedy economic growth and the optimization and upgrading of the industrial structure, China’s foreign trade structure has been improved. Mechanical and electrical products have replaced traditional textile and garment products to rank first among the principal outgoing commodities. At the same time, the raise of per-capita income, the multifarious consumption demand and the sustainable growth of foreign direct investment have all greatly promoted the development of China’sⅡT. The proportion ofⅡT in the bilateral trade between China and every kind of country, including industrialized countries such as US and Japan and newly industrialized countries and developing countries such as Korea, Singapore and ASEAN, has been on the increase. But China’s terms of trade doesn’t get better clearly and China has suffered more and more anti-dumping and countervailing. In the current circumstances, research on the issue of IIT can help China to realize the improvement of terms of trade and the dynamic transition of comparative advantage. Only by this can China seize the opportunity and improve the status in the newly division of industries in the world wide. So that this dissertation will make a profound analysis on the current situation and determinants of China’s IIT.Meanwhile the reduction of global trade barriers has promoted the development of international economic integration which has boosted the development of international trade especially intra-industry trade further. The correlation of the development of international trade and trade-induced adjustment of production elements markets in the background of economic integration has become the focus of attention of academic circle and governments. "Smooth Adjustment Hypothesis" (SAH) which was advanced by Balassa in 1966 holds the opinion that adjustment cost has a great deal to do with the composition of trade and the proportion of intra-industry trade. The higher the proportion of intra-industry trade in the newly increased trade, the smaller the adjustment cost of production elements markets is. China has begun to take full part in international economic integration after entering into the 21st century which on the one hand stimulates the development of the foreign trade especially IIT in China, on the other hand brings some influence to the domestic production elements market such as labour market. Many industries in national economy are under or small or very big adjustable adjusted pressure. Therefore, this dissertation first verifies the applicability of "Smooth Adjustment Hypothesis" in China, then measures the adjustment cost of trade liberalization in the process of economic integration in every industry by using suitable indices. Finally it gives some policy advice for our country to promote the process of economic integration reasonably.This dissertation is made up of six sections and organized as follows. Section 1 is introduction. It illustrates the research background and significance of the dissertation. It presents the trail of development and fundamental problems by literature reviews and it shows the research methods, structure, innovation and deficiency of this dissertation. Section 2 presents Intra-Industry Trade Theory. It firstly defines the concept of "industry" and "intra-industry trade" properly and then it illustrates the origin of IIT from the standpoint of supply and demand. It also analysises and summarizes Intra-Industry Trade Theory Model from the standpoint of homogeneous product, horizontal differentiation and vertical differentiation separately. Finally it points out the latest developments of Intra-Industry Trade Theory. Section 3 presents the current situation of IIT in China. It firstly summarizes and compares various measure indices and classification method of IIT and points out their application respectively, on the base of which does it choose adjusted GL index to measure the total IIT and the IIT of primary products and finished products and choose the standard of GHM to measure and classify IIT of China. Section 4 presents positive analysis of determinants of China’s intra-industry trade. Determinants ofⅡT can be separated into country-specific and industry-specific. It first makes econometric analysis on country-specific determinants of China’s intra-industry trade and makes econometric analysis on industry-specific determinants by choosing 24 manufacturing industries as the object of study. Section 5 presents positive analysis on trade-induced adjustment cost of China in the background of economic integration. It firstly states formation mechanism of trade-induced adjustment cost and advances SAH on the base of former and then it builds a model and verifies the applicability of SAH in China by econometric analysis. Finally it applies the certified SAH to the process of China’s participation in economic integration and measures the adjustment cost of trade liberalization by marginal intra-industry trade indices—A index, B index and S index taking China-Australia free trade zone for example. Section 6 concludes. It first summarizes the conclusions of the precedingnior statement and then gives a series of purposeful suggestions based on the former conclusions.