A Study On The Trade Development Between The Mainland And Taiwan And The Intra - Industry Trade

In today’s world, the rapid development of science and the deepening of international division promote the development of international production and exchange of goods. It also leads to the transformation of international trade patterns. Intra-industry trade is in the dominating position instead of traditional trade patterns.Since the1990s, cross-strait trade between mainland China and Taiwan Province has increased significantly. This paper tries to find the factors driving the development of the cross-strait trade, and whether intra-industry trade features are also showed in it.The paper uses the extended trade gravity model to empirically analyze factors determining Taiwan’s bilateral trade flows with its trade partners. New explanatory variables such as the Trade Conformity Index is included in order to examine the influences of intra-industry trade factors on the development of Taiwan’s bilateral trade flows. G-L index and GHM method are used to measure the level of intra-industry trade and to analyze the structure features of cross-strait trade between mainland China and Taiwan Province, and of the bilateral trade between Taiwan and Japan.From the perspective of intra-industry trade, the paper argues that based on the cointegration analysis there’s a long-run equilibrium relationship of Taiwanese direct investment on the mainland China, Taiwan’s participating in the global vertical specialization and the cross-strait trade. Taiwanese direct investment and Taiwan’s participation in international vertical specialization have become two important factors driving the development of the cross-strait trade.