Research On Intra-Industry Trade Between Jamaica And China

Even though Jamaica and China have entered into a bilateral relationship for well over four decades,there is still a lack of literature on Jamaica-China bilateral trade.The purpose of research is to measure the level of Intra-Industry Trade(IIT)between Jamaica(a middle-income developing country as classified by IMF,WTO,World Bank and UN)and China,a developing country.The Grubel and Lloyd Index(GLI)is used to calculate the level of IIT for the top 10products(at the HS two-digit code)traded China for the periods 1996-2004 and2005-2015.Additionally,the GLI is calculated for HS code 6996990000(other articles of iron and steel,not elsewhere specified)and HS code 8939990000(other articles of plastic,not elsewhere specified)for the period 2005-2015.The estimates for Jamaica's overall level of IIT reveal that Jamaica-China IIT for the observatory period is quite low with only a few exceptions.Nonetheless,HS code 39 and 73 are traded consecutively for thirteen years(2003-2015)and ten years(2004-2014)years respectively.The products level estimates for HS 6996990000 and HS8939990000 result in low IIT as well but in some instances are higher than the overall product categories to which they belong,that is,HS 73 and HS 39 accordingly.Country-specific determinants of IIT are reviewed and identified as it relates to Jamaica-China trade.Using an Ordinary Least Square(OLS)regression model,the GLI results for HS 6996990000 and HS 8939990000 are tested against the determinants.The GLI results are the dependent variables while the difference in GDP Per Capita(DGDP),the average GDP PPP(AGDP),population(POP),foreign direct investment inflows from China to Jamaica(FDI)and trade imbalance for both products(BOP1 and BOP2)are independent variables.The data set for the eleven years(2005-2015)is expanded using Goldstein and Khan(1976)method of interpolation to give quarterly figures,thus achieving thirty-six observations(2006 quarter one to 2014 quarter four).The Augmented Dickey-Fuller Unit Root test is done,and both dependent and independent variables were found to be stationary at the 2nd difference.This new data set is used to conduct the OLS regression.Results for HS 6996990000 suggest that in the short-run,POP(population-a proxy for economic size)is significant and positively correlated,DGDP(proxy for stage of development),AGDP(proxy for economic size)and BOP1(trade imbalance)are also significant but negatively correlated,whereas FDI is found to be insignificant and impacted the level of IIT negatively.Simultaneously,the results indicate that the level of IIT for HS 8939990000 is negatively correlated to DGDP and AGDP and positively influenced by FDI,POP,and BOP2.Based on the above GLI results,this research safely concludes that Jamaica-China bilateral trade is primarily based on inter-industry trade.This is also quite evident in Jamaica's trade imbalance with China(see Table 2.1).Jamaica's overall level of IIT is low and will not increase in the near future unless policy makers identify products like HS code 39 and 73(products which are simultaneously and regularly traded with China)and implement policies to boost those industries.Several recommendations are put forth.The government of Jamaica should seek assistance from their Chinese counterpart to improve its manufacturing industry.This assistance should be in the form of foreign direct investment(capital and expertise).The industries,to which HS 39 and HS 73 belong,are to be developed first and apply the lessons learned to develop other industries.The government of Jamaica should channel FDI specifically into the industry that produces 8939990000 because FDI fosters IIT in this product.Policymakers are advised to implement policies to eliminate existing barriers to trade(reduction in tariff and bureaucracies in import and export procedures) and consider economic integration with China in preparation for future trade and investment relations in light of plans to establish Jamaica as a global logistics hub.The Jamaica Trade and Investment/JAMPRO needs to coordinate with the Jamaican Embassy in China to establish and clarify the pathways to trade from Jamaica to China.Consider partnerships through franchises between Jamaican food suppliers and restaurants in key cities across China.Determine ways in which cultural products that originate in Jamaica can be packaged/replicated/produced and sold in China to build‘Brand Jamaica.'...