Does Taiwan`s Intra-Industry Trade with Mainland China Deviate from the General Pattern?

Abstract

This paper compares Taiwan`s intra-industry trade (IIT) with mainland China to its IIT with its fourteen other trading partners to ascertain whether it is qualitatively different. A time-series OLS regression model (modified with the VARIMAX method of factor analysis and cluster analysis) tests the effects on IIT levels across countries in terms of target country income (measured by consumption levels and gross national product); market size; and tar(ff levels (measured by population and average tariff rates). The model indicates that high IIT levels are correlated with low tariff rates and similar market sizes (the tariff protection effect). Income levels are not significantly correlated with high lIT levels. Furthermore, current IIT levels are determined by the partner`s economic conditions in the previous year. Moreover, despite significant market and institutional differences between mainland China and Taiwan`s other trading partners, tests with dummy variables show that Taiwan`s IIT with the mainland has not deviated from the general pattern.