An Empirical Study On The Influence Of FDI On The Intra‐industry Trade Of China

With the development of the opening up and the expanding introduction offoreign direct of investment (FDI), FDI is playing a more and more important role inthe economy of China. Meanwhile the trade pattern of China is changing frominter-industry trade to a situation where both inter-industry trade and intra-industrytrade (IIT) exist. There are several ways to describe the activities of multinationalcorporations. So far the studies about the relationship between FDI and intra-industrytrade always use FDI financial flows as a measure of FDI activity. However, we aretrying to study this topic from different angles, hoping to find a deeper understandingof their relationship.Firstly, the paper will calculate the share of IIT of US, Japan, EU and H.K.between China as the basis of the empirical analysis. The figures indicate thatinter-industry trade is still the main trade pattern of China, and VIIT accounts themain proportion of the intra-industry trade of China.Then this paper analyses how FDI and some other factors affect IIT (both HIITand VIIT) theoretically. Based on certain theories, this paper makes an empiricalmodel to find out the relationship between FDI and IIT from two perspectives,financial flows and technology transfer. The empirical result shows that FDI improvesboth the level of VIIT and HIIT of China if regardless of the resource of FDI.However, if in consideration of the resource of FDI, the empirical result differs fromthe original. Because the sole investment of multinational corporations hinders thedevelopment of inter-industry trade in China, and the investment motivation ofHongKong is the huge market of China.Finally, according to the empirical results, this paper presents some suggestionon how to improve the quality of foreign capital inflow and how to develop theintra-industry trade in China.