SINO-EUROPEAN TRADE RELATIONS: A gravity analysis

This study applies the gravity model to explain Sino-European trade flows. It constructs a model with trade conformity to identify the logic underlying Chinese trade flows, trade complementarity to test unused trade potential and predicts trade flows between China and the EU28 to estimate the unexhausted trade potential. The empirical results show that global Chinese trade flows follows a Heckscher-Ohlin model with dominant inter-industry trade. For Sino-European trade, Heckscher Ohlin explains EU exports. However for EU imports of China and total Sino-European trade flows, no model could be identified. The calculated Trade Complementarity Index shows that EU imports have a higher complementary with Chinese exports than EU exports and Chinese imports, indicating that the EU is a better export market for China than vice versa. The complementarity explains trade flows better than the conformity model and predicts unexhausted trade potential between the EU and China. Large unexhausted...Show moreThis study applies the gravity model to explain Sino-European trade flows. It constructs a model with trade conformity to identify the logic underlying Chinese trade flows, trade complementarity to test unused trade potential and predicts trade flows between China and the EU28 to estimate the unexhausted trade potential. The empirical results show that global Chinese trade flows follows a Heckscher-Ohlin model with dominant inter-industry trade. For Sino-European trade, Heckscher Ohlin explains EU exports. However for EU imports of China and total Sino-European trade flows, no model could be identified. The calculated Trade Complementarity Index shows that EU imports have a higher complementary with Chinese exports than EU exports and Chinese imports, indicating that the EU is a better export market for China than vice versa. The complementarity explains trade flows better than the conformity model and predicts unexhausted trade potential between the EU and China. Large unexhausted potential is mostly found in Chinese exports to the EU, indicating that China benefits most from improving trade relations between the EU and China. On the member state level, large heterogeneity in trade potential is found. A small number of member states outperform their predicted trade flows. Most EU member states have unexhausted export potential with China, and China has unexhausted export potential towards the majority of EU member states.Show less

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SINO-EUROPEAN TRADE RELATIONS: A gravity analysis