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Research Article
 

Synergy Degree of the Integration of Trade and Investment based on the Experience of China



Wang Hongguo
 
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ABSTRACT

Trade and investment integration theory developed under the condition of the deepening economic globalization and liberalization, it studies the trade and investment behavior of multinational companies. The main point is that foreign trade and investment present high consistency In geographical location, industrial distribution, subject selection and decision. It is insufficient to study the trade and investment as a system. This study puts forward synergy degree of foreign trade and investment system based on the perspective of synergy, builds synergy degree model, measures the development level of integration of trade and investment and selects the data of China’s foreign trade and investment to get the China’s trade and investment integration synergy degree. The result shows that the synergy degree is slow, China’s trade and investment integration in its primary stage.

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  How to cite this article:

Wang Hongguo , 2014. Synergy Degree of the Integration of Trade and Investment based on the Experience of China. Journal of Applied Sciences, 14: 565-572.

DOI: 10.3923/jas.2014.565.572

URL: https://scialert.net/abstract/?doi=jas.2014.565.572
 
Received: November 02, 2013; Accepted: December 21, 2013; Published: February 17, 2014



INTRODUCTION

Since, the late 20th century, foreign trade and foreign direct investment develop rapidly and show the trend of accelerated convergence. The integration of trade and investment has become an important force to promote Economic globalization and world economic growth. Multinational companies affect the global industry layout and structural adjustment profoundly by means of trade and investment and realize the profit maximization.

For a long time, trade and investment relationship and their integration development is the mainstream economists focus on the important issues. Since, the 1950s, Foreign scholars formed the certain theoretical point of view through the study of a country (or region) of foreign trade and investment relationship and its influence on economic development. Such as the model of "alternative" (Mundell, 1957) "complementary model" (Markusen, 1983) "the island model" (Kojima, 1978) "compensation investment model" (Bhagwati et al., 1987), "relationship between uncertain conclusion" (Patrie, 1994; Neary, 1995). On the macro level, these theory reveal the relationship between different conditions of foreign trade and investment.

After the mid-1980s, the economics of the new trade theory (Grossman et al., 2006) and the industrial cluster theory Williamson (1975) and Porter (1998) studied the trade and investment location its influence on the development of the industrial spatial agglomeration, these theory revealed the evolution of division of labor, element flow and the internal connection of industrial agglomeration and explored the integration of trade and investment integration with the global industry space associated mechanism.

The international product cycle theory (Vernon, 1996), OLI mode (Dunning, 1980) multinational company globalization strategy (Yeaple, 2003; Grossman et al., 2006) and so on, such theories illuminate the trade and investment integration is the development of inner choice of the multinational company under different conditions for trade and investment activities. Then, some scholars carried on the empirical test on the relation of trade and investment of different countries (regions) by regression analysis and granger test, panel data methods.

But previous scholars mainly refers to the definition of trade and investment integration is a kind of international economic phenomenon of highly integrated, interdependent and symbiotic development between foreign trade and foreign direct investment. It is expressed as the formation of integration of trade and investment when it promote the relationship between trade and investment. But it is lack of quantitative indicators to measure the development level of integration of trade and investment of such research method. This study put forward the concept of coordination degree of foreign trade and investment system according to the previous insufficient of quantitative measure of the development level of integration of trade and investment, this study establish the coordination degree of foreign trade and investment system to quantitative measure the development level of integration of trade and investment.

Measure of trade and investment integration development level: The synergy degree of foreign trade and investment refers to the harmony degree with each other between the two systems in the process of development, it embodies the trend of the integration of trade and investment system from disorderly to orderly. It is the quantitative indicators to reflects the degree of the integration of trade and investment development.

The calculation of coordination degree of foreign trade and investment system mainly includes the following steps.

Design evaluation index system: It analyses the basic condition of the integration of trade and investment and some various variables within the subsystem of the foreign trade and investment, such as size, structure, location selection, etc. It selects different evaluation index to measure the trade investment integration development according to certain principles.

Determine the foreign trade and investment subsystem coordination development level: It needs a dimensionless processing of data if the evaluation index system of different data do not match the unit. It adopts factor analysis method to determine the two subsystems inspects each year during the period of comprehensive development level if the evaluation index is large.

Coordinated development of establishing regression equation on the basis of a cointegration relationship in foreign trade and investment.

It defines the coefficient of the ratio between the subsystems of foreign trade and investment cooperation and calculates synergy degree of two subsystems to measure subsystem coordination degree between foreign trade and investment.

Analysis of the synergy results: This study uses the number between 0 and 1 as the measured values of synergy degree of foreign trade and investment system by reference to energy-economy-environment about the classification of the coordination degree proposed by Chinese scholars Liu and Sun (2005). It means the two sub-systems completely synergy of the ministry of foreign trade and investment if the synergy degree is 1. It means the two sub-systems is not synergy of the ministry of foreign trade and investment if the synergy degree is 0. It means the two sub-systems is sectional synergy if the synergy degree of foreign trade and investment between 0 and 1. The synergy is much higher, the synergy degree more close to 1.

The level of trade and investment integration development can be divided into three stages of six kinds of circumstances depending on the synergy degree, as Table 1.

LEVEL OF TRADE AND INVESEMENT INTEGRATION DEVELOPMENT OF CHINA

This study establishes the model of synergy degree of foreign trade and investment system using the theory of synergy to measure the development of China’s trade and investment integration level.

Evaluation index system design: The development of the subsystems of foreign trade and investment cooperation index system design should be guided by the coordinated development of foreign trade and investment. This study design an evaluation index of subsystem coordinated development of foreign trade and investment which include 20 indexes. It contains three main aspects of the total amount, structure and location from the angle of reflecting the degree of promoting foreign trade and investment. The specific indexes of the subsystems as showed in Table 2.

The Index data as Table 3 and 4 are got through the China statistical yearbook.

Table 3 is foreign trade subsystem index data, it contains ten indicators from 2002 to 2011, it includes four industry index and six distinguish indicators.

Table 4 is direct investment subsystem index data, it contains 10 indicators from 2002 to 2011, it includes four industry index and six distinguish indicators.

The study standardizes the above data to eliminate the influence, due to the evaluation indicators of the unit is different in the above table which has certain influence to the data statistics processing. The standardized data expressed in matrix, this study adopts the centralized dimensionless method, calculation formula as shown in Eq. 1:

Image for - Synergy Degree of the Integration of Trade and Investment based on the Experience of China
(1)

Xij* is standard observations. Image for - Synergy Degree of the Integration of Trade and Investment based on the Experience of China sj (j = 1.2.3,..., n) is j indicators observations (sample) mean value and mean square error (samples), respectively.

Table 1: Synergy degree of foreign trade and investment and integration development stage
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Table 2: Subsystem evaluation index
Image for - Synergy Degree of the Integration of Trade and Investment based on the Experience of China
Determination of coordination development level. (1) Consistent, standardization of evaluation index

Table 3: Foreign trade subsystem index data
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Data source: China statistical yearbook

Table 4: Foreign direct investment subsystem index data
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Data source: China statistical yearbook

Two sub-systems of comprehensive development leve: This study determines the two subsystem comprehensive development level of the calendar year by the method of Factor analysis, respectively. The basic idea of Factor analysis is to find out a few random variables which control all variables to describe the relationship between multiple variables through the variable correlation coefficient matrix, the random variables are referred to as factors.

Standardized data: This study uses the factor analysis of statistical software SPSS10.0 to deal with the foreign trade of the 10 indicators and foreign direct investment in Table 3 and 4 original data and get the standardized data as shown in Table 5 and 6.

Table 5 is standardization of evaluation index matrix of China’s foreign trade subsystem, it includes ten index.

Table 6 is standardization of evaluation index matrix of China’s Foreign Direct Investment (FDI) subsystem, it includes ten index.

The correlation matrix R of the two sub-systems of foreign trade and investment data.

The correlation matrix R of foreign trade subsystem is shown in Table 7.

The correlation matrix R of Foreign direct investment subsystem is shown in Table 8.

Matrix is not positive definite matrices: The eigenvalue and cumulative contribution rate of the correlation matrix R.

The initial eigenvalues summation, Extraction of sum of squares loaded and Rotate the sum of squares loaded of foreign trade subsystem correlation coefficient matrix are include in Table 9.

Table 5: Standardization of evaluation index matrix of China’s foreign trade subsystem
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Table 6: Standardization of evaluation index matrix of China's foreign direct investment (FDI) subsystem
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Table 7: Correlation matrix R of foreign trade subsystem
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Table 8: Correlation matrix R foreign direct investment subsystem
Image for - Synergy Degree of the Integration of Trade and Investment based on the Experience of China
\
Table 9: Eigen value and cumulative contribution rate of foreign trade subsystem correlation coefficient matrix
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Table 10: Eigen value and cumulative contribution rate of foreign direct investment (FDI) subsystem correlation coefficient matrix
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The results concluded that the first two characteristic value of the cumulative contribution rate has reached 90.938%, it explains the first two factors basically all the information on behalf of the foreign trade subsystem, just take the first two factors.

The initial eigenvalues summation, Extraction of sum of squares loaded and Rotate the sum of squares loaded of foreign direct investment subsystem correlation coefficient matrix are include in Table 10.

The results concluded that the first two characteristic value of the cumulative contribution rate has reached 90.938%, it explains the first two factors basically all the information on behalf of the Foreign Direct Investment (FDI) subsystem, just take the first two factors.

Establish the factor pattern: Factor Pattern is rotated it as Maximum variance and get the Orthogonal factor table of foreign trade subsystem as Table 11.

Factor Pattern is rotated it as Maximum variance and get the Orthogonal factor table of foreign direct investment subsystem as Table 12.

Synergy development level: The factor F1 loading is much bigger among the primary exporting in the orthogonal factor table, manufactured goods exporting, other industry, Asia, Africa, The European, Latin America, North America and Oceania in the foreign trade subsystem. F1 is the first and second industry factor. Factor F2 loading is much bigger among net exports of goods and services and other industry, so factor F2 is the third industry factor. Factor F1 loading is much bigger among Africa, The European, Latin America, North America and Oceania in the foreign direct investment subsystem, F1 is the regional factor. Factor F2 loading is much bigger among Net investment, Agriculture, Mining and manufacturing, other Industry and Asia, F2 is industry factor. The score of the two factors from the factor score table.

The factor score of foreign trade subsystem is showed in Table 13, It contains two indicators, respectively FAC1-1 and FAC2-1.

The factor score of foreign direct investment subsystem is showed in Table 14, It contains two indicators, respectively FAC1-1 and FAC2-1.

The study gets the Level of development(F) of the two sub-systems of foreign trade and investment, the calculation formula of foreign trade and investment is as follows:

F = λ1F1/Σλi+λ2F2/Σλi+…+λmFm/Σλi
(2)

λ is characteristic value, n is total number of characteristic value, m is the number which is obtained, m = 2.

Table 11: Orthogonal factor table of foreign trade subsystem
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Annotation: Principal component analysis method rotation method: With Kaiser standardized orthogonal rotation method convergence after 3 rotation

Table 12: Orthogonal factor table of foreign direct investment
Image for - Synergy Degree of the Integration of Trade and Investment based on the Experience of China
Annotation: Principal component analysis method rotation method: With Kaiser standardized orthogonal rotation method convergence after 3 rotation

The study gets the coordinated development of comprehensive level of China’s foreign trade and investment subsystems from 2004-2011 through the above methods and get the comprehensive development level of the whole system according to the weighted average, the weight of every subsystem comprehensive level is a half, the result is as Table 15.

The coordinated development of China's trade and investment integration system level which is drawed up according to the data in the Table 15.

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Fig. 1: Coordinated development of China’s trade and investment integration system level

Table 13: Factor score of foreign trade subsystem
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Table 14: Factor score of foreign direct investment subsystem
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Table 15: Table of China's trade and investment integration system coordination development level
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From the Fig. 1 shows that trade development level, investment, development level and the comprehensive development level are all in a rising trend except in 2010, it instructions Foreign trade and investment has been in the stage of expansion, Foreign trade and investment development level is in a spiral phase from 2002-2005, it means the development is not the same at different periods.

INTEGRATION OF DEVELOPMENT LEVEL

The study measure and calculate Chinese trade and investment integration development level through the system synergy degree of foreign trade and investment.

Establishment of the coordinated development of the regression equation: According to the comprehensive development level of the subsystems of the foreign trade and investment, The study assume that X and Y, respectively the two subsystem comprehensive development level of foreign trade and investment and determine the following regression equation by SPSS10.0 software.

TRADE = -2.37449951172e-06+0.744995117192x
INVESTMENT
(3)

R2 = 0.45 (2.557)

INVESTMENT = 1.48824398848e-06+
0.603584342817xTRADE
(4)

R2 = 0.45 (2.556)

Synergy coefficient calculation
Formula:
Establishing the coordination coefficient calculation formula as follows according to the fuzzy membership functions:

W(i/j) = exp[K(Bi-bj)2] (K = -2/S)
(5)

W(i/j) is the synergy development coefficient of the subsystem j. Bi is the actual value of comprehensive development level of the i subsystem. Bj is comprehensive development level of the i subsystem synergy with the j subsystem and the study can get the value through the collaborative development model, S is the variance of Bi (Table 16).

T is foreign trade subsystem, I is investment subsystem and calculate W(T/I) and W(I/T) by Eq. 5.

RESULTS

The study define the synergy degree of the subsystem of foreign trade and investment as Eq. 6:

W(T, I) = 1-min{W(T/I),W(I/T)}/max{ W(T/I),W(I/T),}
(6)

So, the study gets the synergy degree of the subsystem of foreign trade and investment as Table 17 and Fig. 2.

The Table 17 contains subsystem coordination degree of foreign trade and investment from 2002-2011, the collaborative degree changing trend is uncertain, it reaches the lowest in 2006 and the highest in 2009.

Changing trend of synergy degree which is drawed up according to the data in the Table 15 as Fig. 2, it shows the changing tendency is uncerty.

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Fig. 2: Change trend of synergy degree

Table 16: Synergy coefficient of the two sub-systems of foreign trade and investment
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Table 17: Synergy degree of the subsystem of foreign trade and investment of china
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CONCLUSION

Synergy degree of foreign trade and investment is low: The synergy degree of the two sub-systems of foreign trade and investment is slow. It is below 0.3 from 2002 to 2011, it means that the synergy degree is weak synergy and it represents that China's trade and investment integration development at a lower level in the early stage.

Variation tendency: The synergy degree of the two sub-systems of foreign trade and investment reduces slowly from 2002-2006. It means that foreign direct investment development is behind the development of foreign trade after the entry into the WTO although the foreign trade and investment are in a growth trend. The synergy degree began to ascend after 2006 and at its highest point in 2009. The reason is that foreign trade has fallen dramatically while foreign direct investment has been on the rise affected by the global financial crisis. But the synergy degree is not high still because of the difference between foreign trade and foreign direct investment is bigger.

The study selects a number of indicators to calculate the synergy degree of China's foreign trade and investment system on the basis of analysis the development of Chinese foreign trade and investment. The synergy degree is still relatively low, it suggests that China’s trade and investment integration level is low and in primary stage, there are some problems in the process of synergy.

China has introduced a series of foreign trade and investment policies to promote the development of foreign trade and investment. The development of foreign trade promotes the growth of the investment and it leads to the expansion of foreign trade in turn. They interactive fusion and collaborative development, but the synergy degree is not high. Foreign trade and investment cooperation has many problems hind the development of trade and investment synergy.

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