Theresa M. Greaney a*,and Yao Li b
a
Department of Economics, University of Hawaii
b
School of Management and Economics, University of Electronic Science and Technology of
China
"We find evidence that Japanese affiliates in China are more concentrated in manufacturing industries and are more export-oriented than their American counterparts, but the
latter difference is shrinking over time.
The traditional Heckscher-Ohlin (H-O) theorem of trade helps in explaining China’s trade pattern.
With the largest population in the world and relatively low
wages, China has comparative and even absolute advantage in manufacturing labor-intensive
products relative to most of its trading partners. As China has increasingly integrated into the
world economy over the past three decades, it has evolved into a major exporter in most
categories of labor-intensive manufacturers, as predicted by the H-O theorem.
This framework indicates that an increase in a country’s inward FDI flows will dampen
its trade growth.
More recent theories that incorporate multinational enterprise production into models of
international trade develop two different hypotheses to explain the relationship between FDI and
trade flows. In vertical integration models such as Helpman (1984), the primary incentive for
FDI is to seek lower production costs in the host country and then to export goods produced or
processed by the firm’s foreign affiliates. This type of FDI inflow will increase a host country’s
trade, primarily through increased exports.2
On the other hand, a host country’s trade is predicted to decrease in horizontal integration models (such as Horstmann and Markusen), 1992 where FDI inflows substitute for imports.
In this case, firms move the production of their
exportable products to the host country to economize on firm-level economies of scale, avoid
trade barriers and reduce transportation costs.
Gu, Awokuse, and Yuan (2008) and Xing (2007) examine the recent relationship
between trade and FDI for China. Gu et al. use disaggregated manufacturing sector data for
1995–2005 to conclude that China’s FDI inflows have statistically significant and positive effects
on China’s total exports, but these effects differ across industries.
With trade data from 1980 to With trade data from 1980 to
2004, Xing (2007) investigates to what extent FDI promoted intra-industry trade between China
and its major trading partners, Japan, and the US. The analysis indicates that Japanese direct
investment in China performed a significant role in enhancing intra-industry trade between
Japan and China. However, there is no such evidence found for the US direct investment in
China
With trade data from 1980 to
2004, Xing (2007) investigates to what extent FDI promoted intra-industry trade between China
and its major trading partners, Japan, and the US. The analysis indicates that Japanese direct
investment in China performed a significant role in enhancing intra-industry trade between
Japan and China. However, there is no such evidence found for the US direct investment in
tra-industry trade between China
and its major trading partners, Japan, and the US. The analysis indicates that Japanese direct
investment in China performed a significant role in enhancing intra-industry trade between
Japan and China. However, there is no such evidence found for the US direct investment in
China''.
a
Department of Economics, University of Hawaii
b
School of Management and Economics, University of Electronic Science and Technology of
China
"We find evidence that Japanese affiliates in China are more concentrated in manufacturing industries and are more export-oriented than their American counterparts, but the
latter difference is shrinking over time.
The traditional Heckscher-Ohlin (H-O) theorem of trade helps in explaining China’s trade pattern.
With the largest population in the world and relatively low
wages, China has comparative and even absolute advantage in manufacturing labor-intensive
products relative to most of its trading partners. As China has increasingly integrated into the
world economy over the past three decades, it has evolved into a major exporter in most
categories of labor-intensive manufacturers, as predicted by the H-O theorem.
This framework indicates that an increase in a country’s inward FDI flows will dampen
its trade growth.
More recent theories that incorporate multinational enterprise production into models of
international trade develop two different hypotheses to explain the relationship between FDI and
trade flows. In vertical integration models such as Helpman (1984), the primary incentive for
FDI is to seek lower production costs in the host country and then to export goods produced or
processed by the firm’s foreign affiliates. This type of FDI inflow will increase a host country’s
trade, primarily through increased exports.2
On the other hand, a host country’s trade is predicted to decrease in horizontal integration models (such as Horstmann and Markusen), 1992 where FDI inflows substitute for imports.
In this case, firms move the production of their
exportable products to the host country to economize on firm-level economies of scale, avoid
trade barriers and reduce transportation costs.
Gu, Awokuse, and Yuan (2008) and Xing (2007) examine the recent relationship
between trade and FDI for China. Gu et al. use disaggregated manufacturing sector data for
1995–2005 to conclude that China’s FDI inflows have statistically significant and positive effects
on China’s total exports, but these effects differ across industries.
With trade data from 1980 to With trade data from 1980 to
2004, Xing (2007) investigates to what extent FDI promoted intra-industry trade between China
and its major trading partners, Japan, and the US. The analysis indicates that Japanese direct
investment in China performed a significant role in enhancing intra-industry trade between
Japan and China. However, there is no such evidence found for the US direct investment in
China
With trade data from 1980 to
2004, Xing (2007) investigates to what extent FDI promoted intra-industry trade between China
and its major trading partners, Japan, and the US. The analysis indicates that Japanese direct
investment in China performed a significant role in enhancing intra-industry trade between
Japan and China. However, there is no such evidence found for the US direct investment in
tra-industry trade between China
and its major trading partners, Japan, and the US. The analysis indicates that Japanese direct
investment in China performed a significant role in enhancing intra-industry trade between
Japan and China. However, there is no such evidence found for the US direct investment in
China''.
