This paper examines Korea's intra industry trade (IIT) by distinguishing vertical IIT from horizontal IIT, and analyzes the determinants of both these kinds of IIT in Korea's trade with China and the USA during the period from 1991 2005. The independe...
This paper examines Korea's intra industry trade (IIT) by distinguishing vertical IIT from horizontal IIT, and analyzes the determinants of both these kinds of IIT in Korea's trade with China and the USA during the period from 1991 2005. The independent variables used in this study are foreign direct investment (FDI), level of technology, and the number of commodities in each industry. Vertical IIT (VIIT) comprised 80 percent of Korea's IIT with China in 2005; high quality IIT was the highest of the IIT indices in China and increased faster than horizontal IIT and low quality IIT, implying that Korea's product quality in its trade with China has improved over time. Low quality IIT comprised 65 percent of Korea's IIT with the USA in 2005, and is the highest of Korea's IIT indices in the USA.
The regression results show that Korea's FDIs in China have increased high quality IIT. In contrast, Korea's FDIs in the USA decreased high quality IIT, but increased low quality IIT, which was not even robust. The relation of Korea's FDI in China and IIT appear complementary. However, Korea's FDI in the USA and IIT appears to be a substitute rather than a complement. In Korea's IIT with both countries, the higher Korea's technology level, the larger Korea's IIT.