The relationship between intra-industry foreign direct investment and intra-industry trade in China

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.