Pattern and Determinants of Intra-industry Trade between ASEAN-5 and United States

Lim, Hor Wai (2018) Pattern and Determinants of Intra-industry Trade between ASEAN-5 and United States. Final Year Project (Bachelor), Tunku Abdul Rahman University College.

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Abstract

Intra-industry trade (IIT) has gained in importance in ASEAN as a result of the rapid growth of ASEAN and their key role in the international fragmentation of production. The purpose of this study is to analyze the recent trade pattern and determinants of intra industry trade (IIT) in manufacturing sector between ASEAN-5 namely Indonesia, Malaysia, Philippines, Singapore and Thailand and United States by applying econometric techniques. This study employed trade data of ASEAN-5 with United States from SITC 5 to SITC 8 categories at four digits for over a period of 20 years from 1996 to 2015 using static panel model. In addition, this study further decompose IIT into horizontal intra-industry trade (HIIT) and vertical intra-industry trade (VIIT) to measure the pattern of trade of ASEAN-5. The findings shows that all the independent variables namely foreign direct investment, real gross domestic product and trade openness have positive relationship with both of the dependent variable horizontal intra-industry trade and vertical intra-industry trade. Besides, the result of this study also suggested that market size and trade openness is a crucial factor in determining HIIT and VIIT. However, foreign direct investment is found to be significant in VIIT only.