The Impacts of FDI Inflows of China on Intra Industry Trade of Indonesia’s Manufacturing Industry

Verena, Vidita Vergia

Review of Indonesian Economic and Business Studies
Vol 7, No 1 (2016): Reviews of Indonesian Economic and Bussiness

This article is to examine the impact of Chinese firms’ FDI to Indonesia on the development of intra-industry trade between two countries, measured by Grubel-Lloyd index. Using Pooled Least Square (PLS) regression method, this article shows that the increase of Chinese firms’ investment in Indonesia’s industry, particularly in manufacturing industry, demonstrated strongly positive effect in the intensification of intra-industry trade. Additionally, this article also finds that the other components such as factor endowments as well as trade openness between two countries and the existence of trade integration are also important determinants of the development of intra-industry trade between two countries.