How Intra-Industry Trade Is Related to Income Difference and Foreign Direct Investment in East Asia

Chan-Hyun Sohn and Zhaoyong Zhang
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Chan-Hyun Sohn: Faculty of Economics, Yokohama National University and KIEP, 79-3 Tokiwadai, Hodogaya-ku, Yokohama 240-8501, Japan
Zhaoyong Zhang: NUCB and School of Accounting, Finance and Economics, Edith Cowan University, 100 Joondalup Drive, Joondalup, WA 6027, Australia

Asian Economic Papers, 2005, vol. 4, issue 3, pages 143-156

Abstract: This paper investigates how intra-industry trade (IIT) is linked to cross-country income difference and foreign direct investment (FDI). We distinguish IIT as either horizontally or vertically differentiated, using bilateral exports and imports data for Japan and the remaining East Asian countries at the SITC five-digit level over 1990-2000. Our results show that the income difference has a negative relationship with the share of horizontal IIT, but a positive relationship with vertical IIT, and that cross-country FDI has a positive relationship with share of horizontal IIT and a negative relationship with share of vertical IIT. Copyright (c) 2006 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.

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