The Determinations of East Asia’s Automobile Trade Using a Gravity Model

Abstract

The aim of this study is to investigate empirically the factors that determine the level of automobile trade in East Asian countries by taking into account government policies as well as the role of MNEs. To do so, in this study we include dummies of import substitution industrialisation (ISI) and export orientation industrialisation (EOI) policies as well as Japanese FDI as additional explanatory variables in our augmented gravity models. We found that GDPs, distance, per capita income, FTA, government policies, language and FDI are the determinants for the development of automobile industry in each country in East Asia. In the case of auto P&C, apart from economic size, the role of government through trade policy (i.e., FTA) and industrial policies as well as the role of MNCs are the major contributors to the development both exports and imports of East Asian countries. In the case of final automobiles, the role of FTA and language seems to be unimportant. Nonetheless, the role of government policies and MNCs seem to be important.