WANG Jinmeng, SHEN Zhiyu:Empirical Research of the Influence of Intra-firm Trade on the Performance of Foreign-funded Enterprises ——Based on the Viewpoint of International Division of Labor and Transaction Costsource:Finance & Trade Economics ,No.2,2015

Abstract：This paper studies the mechanism and results of the influence of the intra-firm trade on the performance of foreign-funded enterprises(FFE) from the perspective of labor and specialization, transaction cost and transfer pricing.Different from previous literatures, the performance of FFE is divided into efficiency and effectiveness.Through the research of FFE in the manufacturing industry of Jiangsu province, this paper finds that the labor productivity of FFE increases with the rising proportion of intra-firm trade, so it proves that the intra-firm trade promotes the efficiency of FFE.However, after controlling the labor productivity, this paper also finds that the return of asset of FFE decreases with the proportion of intra-firm trade.So it shows that the transfer pricing of FFE reduces the effectiveness, and at the same time we find that the wholly-owned foreign enterprises transfer more profits to oversea than the joint ventures, and the higher the tax rate is, the more profits will be transferred to foreign related parties.With the further investigation, we find that the intra-firm trade improves the level of division of labor and specialization of FFE by staff training and the economy of scale rather than R&D investment.Moreover, the intra-firm trade overcomes imperfection of the external market, so it reduces the transaction cost of FFE.It is fully illustrated that multi-national corporations provide supports to improve the competitiveness of FFE by the intra-firm trade of intermediate products on one hand, and transfer profits to foreign countries and evade tax through transfer pricing on the other hand.So the efficiency of promoting and tunneling coexist.The paper not only provides a microscopic explanation for the continuing rise of the proportion of intra-firm trade in the global trade, but also provides the theory basis for China FDI policy formulation.

Key words： Intra-firm Trade    International Division of Labor    Transaction Cost,Foreign-funded Enterprise   Performance

source:Finance & Trade Economics ,No.2,2015