Bilateral Trade and Shocks in Political Relations: Evidence from China and Some of its Major Trading Partners, 1990–2012

43 Pages Posted: 18 Dec 2014

See all articles by Yingxin Du

Yingxin Du

University of International Business and Economics (UIBE)

Jiandong Ju

University of Oklahoma - Department of Economics; Tsinghua University - PBC School of Finance

Carlos D. Ramirez

George Mason University - Department of Economics

Xi Yao

Guanghua School of Management, Peking University

Date Written: December 16, 2014

Abstract

An extensive number of studies investigate the effects of political relations on trade by estimating a gravity model using annual (or quarterly) data. We argue that the use of low-frequency data introduces an aggregation bias because the cycle of moderate political shocks is much shorter (measured in weeks). Using monthly data from 1990 through 2012 for China, we estimate a model of political relations and conclude that political shocks are short-lived. Narrative evidence from two case studies confirms that transitory nature of these shocks. A VAR model shows that although political shocks influence trade, the effects vanish within two months.

Keywords: Political Relations, Bilateral trade, China

JEL Classification: F14, F51

Suggested Citation

Du, Yingxin and Ju, Jiandong and Ramirez, Carlos D. and Yao, Xi, Bilateral Trade and Shocks in Political Relations: Evidence from China and Some of its Major Trading Partners, 1990–2012 (December 16, 2014). GMU Working Paper in Economics No. 14-50. Available at SSRN: https://ssrn.com/abstract=2539384 or http://dx.doi.org/10.2139/ssrn.2539384

Yingxin Du

University of International Business and Economics (UIBE) ( email )

10, Huixin Dongjie
Changyang District
Beijing, Beijing 100029
China

Jiandong Ju

University of Oklahoma - Department of Economics ( email )

729 Elm Avenue
Norman, OK 73019-2103
United States
405-325-5492 (Phone)
405-325-5842 (Fax)

Tsinghua University - PBC School of Finance

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Carlos D. Ramirez (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
Enterprise Hall MSN 3G4
Fairfax, VA 22030
United States
703-993-1130 (Phone)
703-993-1133 (Fax)

Xi Yao

Guanghua School of Management, Peking University

308, New Building of Guanghua School of Management
Peking University, Haidian District
Beijing, Beijing 100871
China
+(86)-15101141625 (Phone)

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