Influencing Factors of China-Africa Intra-Industry Trade

Abstract

Intra-industry trade (IIT) is prominent to have potential benefits to improve the economic prospects of countries and has gradually been pivotal in understanding developing countries’ trade, including those in Africa. This study evaluates the extent of IIT between China and 18 major African trading partners across 10 Standard International Trade Classification (SITC) industries, and examine the influencing factors of China-Africa IIT between the periods 2007 – 2018. Using a non-weighted Grubel–Lloyd index, the overall level of China-Africa IIT remains low but has certain level of potential between some partners. Among the 10 SITC classified industries, SITC 0 (Food and live animals), SITC 2 (Crude materials, inedible, except fuels), SITC 5 (Chemicals and related products, n.e.s.) and SITC 6 (Manufactured goods classified chiefly by material) had potential for IIT. In addition, the influencing factors of China-Africa IIT were examined using an improved gravity model estimated by Feasible Generalised Least Squares (FGLS) in a panel data framework. The main empirical regression model results reveals that, China’s IIT with major African trading partners are significantly influenced by gross domestic product (GDP), foreign direct investment (FDI), real exchange rate, trade intensity, distance, and landlocked countries. The study further reveals that, GDP and FDI boost China-Africa IIT whereas real exchange rate, trade intensity, distance, and landlocked depress IIT.