An Analysis between Foreign Direct Investment and Intra-Industry Trade in Turkey: A VECM Approach

Year 2023, Volume: 20 Issue: 51, 76 - 85, 31.01.2023

Canan Şentürk

https://doi.org/10.26466/opusjsr.1152707

Abstract

The stylized world of identical technologies between countries, perfect competition and homogeneous products in the markets, and inactivity of production factors/inputs between countries is no longer valid. Knowledge economy, imperfect competition, differentiation, industrial clusters, new economic geography, transportation and transaction costs are among the factors that create the transformation in international trade. However, there is a specific literature that highlights the existence of examples of firms that are competitors or interconnected as parts of a single supply chain in the international economy, and spread of production activities to the world geography as an extension of the global transformation in production processes. In this context, since multinational firms mostly produce differentiated goods and a large part of intra-industry trade (IIT) is based on intra-firm trade of these firms, the linkage between foreign direct investment (FDI) and IIT is important. This connection is also supported by the fact that FDI is among the country-specific determinants of IIT in the literature. For this purpose, in this study, IIT index values for the period 1995-2020 in Turkey are calculated based on the distribution of exports and imports according to BEC classification. And FDI values related to industrial sectors in the same period are taken as basis. The relationship between the series is examined by cointegration analysis and the direction of the relationship is revealed by causality analysis based on vector error correction model (VECM). In the results of the study, it has been determined a one-way causal relationship from FDI to IIT for capital goods; and from IIT (total) to FDI. This is consistent with the result of the existence of a significant and positive relationship between technology intensity and IIT thanks to FDI in the literature.

Keywords

International Trade, Foreign Direct Investment, Intra-Industry Trade, VECM

References

• Adda, J. (2005). Ekonominin küreselleşmesi, İletişim Yayınları.
• Aktan, C.C. and Vural, İ.Y. (2021). Globalleşme sürecinde çok uluslu şirketler. http://www.canaktan.org/ekonomi/cok-uluslu/aktan-makale.pdf . (Erişim: 01.12.2021).
• Ambroziak, Ł. (2010). The foreign direct investments (FDI) as a factor of intra-industry trade development in the EU New Member States. The European Trade Study Group, p.9-11.
• Ambroziak, Ł. (2012). FDI and intra-industry trade: theory and empirical evidence from the Visegrad Countries. International Journal of Economics and Business Research, 4(1-2), 180-198.
• Aturupane, C., Djankov, S. and Hoekman, B. (1999). Horizontal and vertical intra-industry trade between Eastern Europe and the European Union. Weltwirtschaftliches Archiv/Review of World Economics, 135, 62–81.
• Balassa, B. (1986). the determinants of intra-industry specialization in the United States trade. Oxford Economic Papers, 38, 220-233.
• Balassa, B. and Bauwens, L. (1987). Intra-industry specialization in a multi-country and multi-industry framework. The Economic Journal, 97(388), 923-939.
• Blanes, J.V. and Martin, C. (2000). The nature and causes of intra-industry trade: Back to the comparative advantage explanation? The case of Spain. Weltwirtschaftliches Archiv/Review of World Economics, 136(3), 600–613.
• Brander J. and Krugman, P. (1983). A reciprocal dumping model of international trade. Journal of International Economics, 15(3/4), 313-321.
• Brander, J. (1981). Intra-industry trade in identical commodities. Journal of International Economics, 11, 2-14.
• Brander, J. A. and Spencer, B. J. (1984). Export subsidies and international market share rivalry. NBER Working Papers, 1464, National Bureau of Economic Research.
• Burange, L. G., Thakur, P. and Kelkar, H. K. (2017). Foreign direct investment and intra-industry trade in India’s manufacturing sector: A causal relationship. Foreign Trade Review, 52(4), 203-218.
• Caetano, J. and Galego, A. (2007). In search for determinants of intra-industry trade within an enlarged Europe. South-Eastern Europe Journal of Economics, 5(2), 163-183.
• Caves, R. E. (1981). Intra-industry trade and market structure in the industrial countries. Oxford Economic Papers, 33, 203-223.
• Doğanay, M.A., Değer, M.K. and Genç, M. C. (2014). Foreign direct investment and intra-industry trade: Causality analysis of transport equipment sector in Turkey (2006-2013). International Conference on Eurasian Economies. Erişim tarihi: 21.07.2022 https://avekon.org/papers/903.pdf.
• Engle, R. F. and Granger, C. W. (1987). Co-integration and error correction: Representation, estimation, and testing. Econometrica: journal of the Econometric Society,55(2), 251-276.
• Fontagne, L. and Freudenberg, M. (2002). Long-term trends in intra-industry trade, Chapter 8, Frontiers of Research on Intra Industry Trade içinde, H. Grubel and H.-H. Lee (ed.), Palgrave.
• Fukao, K., Ishido, H., and Ito, K. (2003). Vertical intra-industry trade and foreign direct investment in East Asia. Journal of the Japanese and International Economies, 4(17), 468–506.
• Grubel, H. and Lloyd, P. J. (1971). The Empirical Measurement of intra- industry trade. Economic Record, 470, 494-517.
• Han, K. and Lee, J. (2012). FDI and vertical intra-industry trade between Korea and China. Korea and the World Economy, 13(1), 115-139.
• Helpman, E. and Krugman, P. R. (1985). Market structure and for returns, imperfect competition, and the international econonomy. Cambridge.
• Markusen, J. R. and Maskus, K.E. (2001). A unified approach to intra-industry trade and foreign direct investment. NBER Working Paper No. 8335.
• Porter, M. E., (1998). The competitive advantage of nations. Free Pres.
• Reganati F. and Pittiglio, R. (2005). Vertical intra-industry trade: Patterns and determinants in the Italian case. Working Paper Quaderni, DSEMS 06-2005.
• Sharma K. (1999). Pattern and determinants of intraindustry trade in Australian Manufacturing. Center Discussion Paper no. 813, Economic Growth Center, Yale University.
• Sims, C. A. (1980). Macroeconomics and reality. Econometrica: Journal Of The Econometric Society, 48(1), 1-48.
• Türkcan, K. and Ateş, A. (2010). Structure and determinants of intra-industry trade in the U.S. Auto-Industry. Journal of International and Global Economic Studies, 2(2), 15-46.
• United Nations, (2002). Classification by broad economic categories. Statistical Papers Series M No. 53, Rev.4, New York.
• Vernon, R. (1966). International investment and international trade in the product cycle. The Quarterly Journal of Economics, 80(2), 190-207.
• Walther, T. (2002). Dünya ekonomisi. Alfa Yayıncılık.
• Yoshida, Y., Carlos Leitão, N., and Faustino, H. C. (2009). Vertical intra-industry trade and foreign direct investment between Japan and European Countries. Atlantic Economic Journal, 37(4), 351-365.