OECD Development Centre Working Papers

The OECD Development Centre links OECD members with developing and emerging economies and fosters debate and discussion to seek creative policy solutions to emerging global issues and development challenges. This series of working papers is intended to disseminate the OECD Development Centre’s research findings rapidly among specialists in the field concerned. These papers are generally available in the original English or French, with a summary in the other language.

English, French

Vertical Intra-Industry Trade Between China and OECD Countries

This paper examines the issue of intra-industry trade in a transition economy. We address the question of whether the market-opening reforms in China have resulted in an increasing exchange of similar products, or whether foreign trade is still playing the role of filling the gap of products not produced within the country. We find that the proportion of intra-industry trade in China-OECD trade has increased from 12 per cent of total manufacturing trade in 1980 to over 20 per cent in 1992. The highest shares of intra-industry trade with China are reported for Japan and the United Kingdom.

Due to the large differences between China and the OECD countries in terms of factor endowments, we expect intra-industry trade to be of the vertical nature, i.e., two-way trade in varieties of a product characterised by different qualities. Empirical evidence indeed shows that the majority of the intra-industry trade between China and the OECD is of the vertical nature; China exports lower quality ...


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