Download This PaperDoes Political Risk Matter for China's Trade with ASEAN and MENA Countries? A Belt Road Initiative Perspective
21 Pages Posted: 23 Jun 2021 Last revised: 13 Aug 2021
Date Written: August 12, 2021
Abstract
ABSTRACT
This study examines the role of political risk in deterring China’s trade flow
with her 132 trading partners with particular attention to the Association
of Southeast Asian Nations (ASEAN) and the Middle East and North African
(MENA) countries for 1984-2015 in the Belt Road Initiative (BRI) framework.
Using twelve political risk indicators from the International Country Risk Guide
(ICRG), we use factor analysis to retrieve three underlying factors: ’Cultural
Rigidity,’ ’Governance Failure,’ and ’Partners’ Adverse Feeling.’ After combining these factors into a dynamic system GMM Gravity equation, we
examine their impact on China’s trade flow. As we control for Gravity variables and these risk factors, BRI has been found effective for China with
MENA countries, ASEAN10, and ASEAN10 þ 3 (China, Japan, and South
Korea) but detrimental to trade flow within the ASEAN10 þ 6 (China, India,
Japan, S Korea, Australia, and New Zealand) setup. Among the three factors, ’Partners’ Adverse Feeling’ is the most substantial deterrent, followed
by ’Cultural Rigidities.’ Most of the traditional Gravity coefficients like
domestic and partner country’s GDP, domestic and partner country’s per
capita GDP, distance, GATT membership of China and Partners, take their
right sign and significance. ’Governance failure’ has been found as a significant deterrent neither in ASEAN nor in MENA setup. Therefore, China
should strive to improve cultural bottlenecks with her partner countries
and improve upon the existing adverse perception in enhancing her trade
flow with these countries
Keywords: KEYWORDS China; belt road initiative; one belt one road; silk road; South East Asia; ASEAN; ASEAN10 þ China; ASEAN10 þ 3; ASEAN10 þ 6; MENA; gravity equation; ICRG; political risk; institutional risk; dynamic panel; GMM; factor analysis; governance failure; partners’ adverse feeling; cultural rigidi
JEL Classification: F1, F5
Suggested Citation: Suggested Citation