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Will New Trends in Foreign Direct Investment Change the Structure of Intra-industry Trade between China and Japan?

Author

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  • Tao Tao

    (Australia Japan Research Centre)

Abstract

It is generally believed that Japan's cost-oriented and export-oriented direct investment has introduced a bilateral intra-industry trade pattern in ChinaJapan trade through which China imports accessories from Japan, processes them and exports the product to Japan. Based on investment and trade data in the machinery sector, this paper discusses whether Japan's market-oriented investment in China since 2000 has changed the structure of the trade between two countries. We conclude that the vertical division of labour, as described by the flying-geese model and applied to the machinery industry, is gradually disappearing. In its place, no stereotypical East Asian vertical division of labour has been formed in transport machinery industry, despite it being the sector into which investment has grown fastest since 2000. Rather, factor endowment is the main determinant of intra-industry trade in the machinery industry between the two countries.

Suggested Citation

  • Tao Tao, 2008. "Will New Trends in Foreign Direct Investment Change the Structure of Intra-industry Trade between China and Japan?," Trade Working Papers 22706, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:tradew:22706
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    File URL: http://www.eaber.org/node/22706
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    References listed on IDEAS

    as
    1. Fukao, Kyoji & Ishido, Hikari & Ito, Keiko, 2003. "Vertical intra-industry trade and foreign direct investment in East Asia," Journal of the Japanese and International Economies, Elsevier, vol. 17(4), pages 468-506, December.
    2. Johannah Branson, 2008. "Competition policy in ASEAN - Case studies," Macroeconomics Working Papers 22347, East Asian Bureau of Economic Research.
    3. Falvey, Rodney E., 1981. "Commercial policy and intra-industry trade," Journal of International Economics, Elsevier, vol. 11(4), pages 495-511, November.
    4. Greenaway, David & Hine, Robert C & Milner, Chris, 1995. "Vertical and Horizontal Intra-industry Trade: A Cross Industry Analysis for the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(433), pages 1505-1518, November.
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    Cited by:

    1. Henry Ergas, 2008. "Should Australia Encourage Developing Countries to Adopt Competition Laws?," Asia Pacific Economic Papers 376, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.

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    More about this item

    Keywords

    trade; foreign direct investment; Japan; China; Intra-industry trade;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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