The Relationship between Intra-Industry Trade and FDI: A Case of Machinery and Transport Equipment Trade between Korea and China

산업내 무역과 해외직접투자의 관계 : 한.중간 기계 및 운수장비 산업을 중심으로

This study presents the pattern and determinants of intra-industry trade in Korea's machinery and transport equipment industry focusing the influence of foreign direct investment on intra-industry trade. Using an OLS regression model the determinants of intra-industry trade are investigated. Results indicate that a statistically significant negative relationship is found between intra-industry trade and foreign direct investment, and show that intra-industry trade is positively affected by the degree of product differentiation and export structure similarity. Intra-industry trade is also positively associated with the economies of scale, the level of trade barrier, and transportation costs, although this is not statistically significant. The study found strong evidence that the propensity of foreign direct investment toward export specialized industry makes the negative relationship between intra-industry trade and foreign direct investment.