The Link of Intra-Industry Trade with Foreign Direct Investments

Abstract

International trade quite often includes intra-industry trade (IIT) – definition classifies IIT as trading with similar goods or services belonging to the same industry; which are simultaneously imported and exported by a particular country during the specific time period, mainly on a yearly basis. On the other hand, foreign direct investments (FDI) directly influence international trade, and intra-industry trade, as well. According to the recent research during last decades a revival of interest in intra-industry trade has been noted; both on micro and macro level. The standard Grubel-Lloyd formula is still being used for empirical work. This however refers only to international trade, disregarding capital flows, and FDI. Given the overwhelming importance of the latter, this paper tries to research for relevant data in this regard. The objectives of the paper are to present fundamental theoretical framework linked to IIT, and more specifically to research a direct link that IIT and FDI form in contemporary international economic relations. In addition to presented theory related to the subjects of research, further observation includes analysis of empirical research and case studies. This enables the authors to draw conclusions and, therefore, suggest potential implications for development policy.