China's Politics and Bilateral Trade Linkages

Abstract

China's position in the world economy during the past half-century provides vital information for investigating the relation between politics and trade. Although there is a substantial number of studies in this area, the current study extends the literature in at least three ways: (1) it is one of the first studies that investigates the problem of a potential sample selection bias—as a result of the fact that countries taken up in the analysis are not randomly sampled from all countries in the world; (2) it considers third-country effects that follow from the fact that China's relation with any two countries is affected by the relation between these countries themselves; and (3) it tests the impact of five political arrangements simultaneously, which is more comprehensive than any former study. By using data as to 78 of China's trade partners over the 1950–2002 period, this study provides empirical evidence for the hypotheses that the establishment of diplomatic relations, cooperation, visits of heads of states and political system similarity are associated with greater trade flows. The hypothesis that member countries of a Preferential Trading Agreement have had smaller trade flows with China, which is no member of any of these Preferential Trading Agreements, is not supported by the results.