The Relationship between Intra-Industry Foreign Direct Investment and Intra-Industry Trade in China

Licai Lyu; David Blandford

doi:10.2298/PAN160726027L

Licai Lyu South China Agricultural University, Department of Economics, China
David Blandford The Pennsylvania State University, Department of Agricultural Economics, Sociology and Education, USA

DOI: http://dx.doi.org/10.2298/PAN160726027L

Abstract

This paper explores the relationship between intra-industry investment (III) and intra-industry trade (IIT) using cointegration and the Granger causality test. The empirical results indicate that there is a long-run equilibrium cointegration relationship between III and IIT in Chinese agriculture, manufacturing, the service sector and industry as a whole, and that this relationship is negative. Unidirectional Granger causality runs from III to IIT in manufacturing, the service sector and industry as a whole, but there is no strong evidence of causality running from IIT to III in any industry in China.

Key words: Intra-industry foreign direct investment, Intra-industry trade, Cointegration, Granger causality.
JEL: F14, F21, F23.