Panel Data Studies On Chinese Trade-a Gravity Equation Approach

This paper utilized the Gravity Equation as the econometric tool to study the hottopics in Chinese trade. The growth of trade was the most important engine of theeconomic growth of China. Which factors affect Chinese trade most, how Chinese tradewill evolve in the future, is there any correlations between trades from different regions,and are there any differences between trades in different sectors, are some of the corequestions in the trade studies.We applied the Gravity Equation to discuss these questions. Gravity Equation is themost applied mathematical tool in the international trade studies. We summarized thenew developments in recent studies and applied these developments to the studies ofChinese trades based on panel data of176trading partners and31years. We discussedthe factors that may affect Chinese trades, especially the events of accession to WTOand other regional trade agreements.Based on these studies, we made the prediction of the development of Chinesetrade in the near future. Using the income elasticity and exchange rate elasticity in theGravity Equation, we can calculate the prediction of trade growth based on thepredictions of GDP growths. According to the GDP growth predictions of eachcountries made by the IMF, we predicted the total trade as well as the surplus in2012.In the aftermath of international crisis and European sovereign debt crisis, this methodis crucial in impacting the effect of these crises on Chinese trades.We also studied the impact of space factors. By introducing the space econometricsinto the Gravity Equation, we discussed the correlations of trades from different regionsand discussed the direct and indirect impacts of trades by analyzing spatial lag modeland spatial error model.At last, we analyzed the panel data of trades from different sectors. By comparingthe regression parameters, we discussed the characteristics of different sectors. From theresults, we can see that although the bilateral exchange rate is not a factor thatsignificantly affects the total trade, it has significant impacts in several sectors with higher degrees of vertical specialization, and its impacts are found to be in the samedirection to exports and imports. This reflects the unique characteristic of the integrationof international economy and indicates that the adjustment of exchange rates may not bethe most effective methods in adjusting Chinese trade balances.