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Vertical Intra-Industry Trade and Foreign Direct Investment in East Asia

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  • Kyoji Fukao
  • Hikari Ishido
  • Keiko Ito

Abstract

As economic integration in East Asia progresses,trade patterns within the region are displaying an ever-greater complexity: Though inter-industry trade still accounts for the majority,its share in overall trade is declining. Instead,intra-industry trade (IIT),which can be further divided into horizontal IIT (HIIT) and vertical IIT (VIIT),is growing in importance. In this paper,we set out to measure and examine vertical intra-industry trade patterns in the East Asian region and compare these with the results of previous studies focusing on the EU, to which such analyses so far have been confined. Based on the supposition that VIIT is closely related to offshore production by multinational enterprises,we then develop a model to capture the main determinants of VIIT that explicitly includes the role of FDI. The model is tested empirically using data from the electrical machinery industry. The findings support our hypothesis,showing that FDI plays a significant role in the rapid increase in VIIT in East Asia seen in recent years.

Suggested Citation

  • Kyoji Fukao & Hikari Ishido & Keiko Ito, 2003. "Vertical Intra-Industry Trade and Foreign Direct Investment in East Asia," Discussion papers 03001, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:03001
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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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