Bilateral trust and trade: Evidence from China

Abstract

By changing transaction costs, trust can be a determinant of interregional economic exchange. Based on data sets of bilateral trust and trade at provincial level in China, this study investigates the trust–trade relationship empirically. As a channel of affecting bilateral trade, bilateral trust is incorporated into gravity models. By controlling for institutional quality, labour migration and other economic indicators, the baseline results show that the bilateral trust is positively correlated with the bilateral trade significantly. The sensitivity tests using an alternative estimation of interprovincial trade in China also confirm this positive trust–trade relationship. In addition, we use an instrumental‐variable estimation to control for the endogeneity of bilateral trust, and find that the trust–trade relationship is robust. This relationship seems to reveal that improving bilateral trust can be a new channel of boosting bilateral trade.

Does political conflict affect bilateral trade or vice versa? Evidence from Sino-U.S. relations

“…In addition to this, there is now extensive evidence that interdependent bilateral trade reduce interstate political conflict (Gleditsch, 2008;Jervis, 2002;Xing & Zhou, 2018). For example, liberal theorists identify that increased bilateral trade strengthens cooperation by increasing the opportunity cost of political conflicts (Maoz, 2009;Polachek et al, 1999).…”

Contractual frictions and the patterns of trade: The role of generalized trust

“…In addition to being related to the broader literature examining the effect of domestic institutions on the patterns of international trade specialization (Levchenko, 2007;Nunn, 2007;Manova, 2013), this paper contributes to a growing body of literature on the international trade effect of trust. Pioneer studies in this literature consider bilateral trust between exporter and importer to be "transaction cost reducing" and argue that enhancing bilateral trust between both parties will increase bilateral trade (Guiso, Sapienza and Zingales, 2009;Yu, Sjoerd and de Haan, 2015;Spring and Grossmann, 2016;Xing and Zhou, 2018;Melitz and Toubal, 2019). To test this hypothesis, available studies regress bilateral trade volume on bilateral trust.…”

Arrival of Young Talents: Send-Down Movement and Rural Education in China

“…Most were reallocated within the province and only 7.9% (1.4 million) were sent outside the province. This implies that the inter-province flow of SDYs, which is highlighted in the studies of Kinnan, Wang, and Wang (2018) and Xing and Zhou (2018), account for only a small part of the movement. Among the 1.4 million inter-province SDYs, three municipalities-Beijing, Tianjin, and Shanghaicontributed 87.3% of the total (or 0.87 million).…”

“…They found that temporary migration due to the program created lasting inter-province links, which resulted in increased access to migration decades after the program ended. Xing and Zhou (2018) provided evidence that SDYs became familiar to the residents living in their sent down regions. Henceforth, bilateral trust and trade between the source province and the destination province increased.…”

“…Henceforth, bilateral trust and trade between the source province and the destination province increased. Both Kinnan, Wang, and Wang (2018) and Xing and Zhou (2018) examined the inter-province flow of SDYs.…”