China’s trade efficiency: measurement and determinants

Abstract

According to these properly adjusted income data, China's current export-to-GDP ratio is slightly above 6 per cent. China still has great potential for export growth. In what follows, the method used by Drysdale et al. (1998) to evaluate the efficiency of China's bilateral trade with individual countries will be applied. In a stochastic gravity model framework, trade efficiencies can be measured and their determinants identified. This will not only provide some idea about the efficiency performance of China's bilateral trade relative to other countries, but also suggest some policy measures to improve efficiency. Bilateral trade flows have been the focus of an important part of the literature on international trade. In a comprehensive review of methodologies analysing bilateral trade flows in a many-country world, Drysdale and Garnaut (1982) identified two types of barriers (or resistances) to trade-objective and subjective resistances-and examined two analytical approaches-the gravity model and trade intensity analysis-which recur in this literature. The gravity model, pioneered by Tinbergen (1962), offers a simple but useful framework for empirical studies identifying important factors influencing bilateral trade flows. In the studies by Tinbergen and many of his followers (such as

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