The Dynamic Effect of the Industrial Production Index on the Persistence of Trading Between Taiwan and China

This study investigates the nonlinear relationship between the rate of change in Taiwan’s export value to Mainland China and the Industrial Production Index (IPI). A Panel Smooth Transition Autoregressive (PSTAR) model is used to examine nonlinear effects. The empirical data show that the IPI has heterogeneous and nonlinear effects on export income persistence, with the one-period lag of the export value change rate used as the independent variable, the current-period export value change rate as the dependent variable, and the one-period lag of the IPI as the threshold variable. Monthly statistics from June 2001 to October 2024 are examined. The empirical results reveal that the IPI has nonlinear and heterogeneous effects on the persistence of the export value growth rate. When the IPI is below the expected threshold, the current-period export value change rate relies primarily on the lagged export value change rate. When the IPI crosses the threshold, the lagged export value change rate has no effect on export performance, but current economic conditions do. These data show that the IPI has a heterogeneous and state-dependent influence on Taiwan’s Chinese export income.