This paper compares Taiwan’s intra-industry trade (IIT) with mainland China to that with its other trading partners to ascertain whether IIT with the mainland is qualitatively different from IIT with others. A time-series OLS regression model tests the effects on IIT levels across countries of: target country income (measured by consumption levels and GNP), and market size and tariff levels (measured by population and average tariff rates). The model indicates that high levels of IIT are correlated with low tariff rates and similar market size. Income levels are not significantly correlated with high HIT 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 does not deviate from the general pattern.
These results imply that Taiwan’s labor-intensive industries invest in countries with a large population, low development level, limited buying power (market size), and high tariff rates. IIT levels start high but decrease with growth in industrialization in the target countries. However, for all industries, both labor-intensive and not, if Taiwan’s partners have low tariff rates or similar buying power, the IIT levels remain high.
