China’s Intra-Industry Trade and Country Specific Determinants

A lot of studies have been made concerning intra-industry trade for developed or industrialized countries and not so much for transitional economies like China. The purpose of this thesis is to analyze the trend of Chinese intra-industry trade with 20 partner countries and to empirically test six country specific determinants during a time period of 22 years (1990-2011). Intra-industry trade (IIT) will be calculated using the Grubel and Lloyd index, which is the most readily used index to calculate IIT. Trade will be divided into seven sectors (machinery, metal, chemical, food, textile, transport, electrical) and each sector will have its own regression analysis to test the country specific determinants. The regressions yielded some surprising results. Three determinants revealed themselves to be quite significant. Population and GDP in terms of purchasing power parity (GDP_PPP) define how similar two markets are and the results show that the more similar two markets are, the more likely trade will take place. However, trade imbalance (BOP) was significant in 5 sectors as well.