Analysis Of Sino-German Trade Potential Based On Gravity Model

The Sino-German bilateral trade has an important position in China’s international trade relations. According to China’s official statistics, there is a huge surplus between China’s import from and export to Germany for many years. With the rapid development of the Sino-German bilateral trade, the trade deficit between China and Germany is also growing fast. To estimate the potential of trade between China and Germany in a scientific way is practically important for the further development of Sino-German trade.This article is focused on analysis of the Sino-German bilateral trade flows. Firstly, it systematically analyses the current situation of the Sino-German trade with aspects of changes in Sino-German trade flows in recent years, trade dependence degree between China and Germany as well as the comparative advantage of trade goods between the two countries. Secondly, it analyses the main impact factors of the Sino-German bilateral trade flows based on the trade gravity model using panel data between 2002 and 2014, and then estimates the total trade potential and the potential of trade in both import and export directions between China and Germany.Although many scholars have used the trade gravity model to calculate trade potential between China and some trade partners, there has been no article that studies the trade potential between China and Germany using this model. Compared with previous studies, the data used in this article is more novel, and the research ideas are more rigorous. The data used in this article is from Comtrade databank of the United Nations, the French CEPII databank and the databank of the World Bank. By calculating the revealed comparative advantage index of trade goods in 2002 and 2014 of China and Germany, the tradable goods are divided according to the SITC Rev.3 encoding into nine categories. By estimating the trade potential between China and Germany, due to the huge difference between the Sino-German bilateral trade data reported by China and Germany, we use the data of the trade flows between 2002 and 2014, reported by China and Germany to the Comtrade databank, and regress the data separately. Based on the coefficients that from the regression results, we then estimate the bilateral trade potential using the data of China and Germany separately, that makes the estimation results more robust. Further, in addition to the estimation of the total potential between China and Germany, vectors of China’s import and export trade to Germany are introduced into this paper to estimate the potential of the Chinese export to and import from Germany. Furthermore, in order to analyze the potential of China’s exports to Germany better, the paper also introduces comparative advantage index analysis to make the conclusions more convincing.Particularly to the methodology, this paper uses the regression analysis with regression models based on the theory of trade gravity model. Trade data of China and Germany with 76 co-partners in 13 years is used by regression of the models. There regression methods are used, respectively pooled least square, fixed effect and random effect. According to the scientific analysis, fixed effect model is more appropriate. To get the coefficient of all factors, the least squares dummy variable estimation (LSDV) is then used to estimate the parameters, with which the trade potential between China and Germany can be calculated.According to the empirical studies in this paper, thanks to the good economic and trade relations between China and Germany, the scale of bilateral trade between China and Germany is very huge, the trade dependence of the two countries is very high and there is complementation between the comparative advantages of the Chinese and German export goods, but also competition. The analysis result of comparative advantage index reveals that the effect of China’s industrial upgrading is obvious, which means big steps in the right direction. From the index data of 2002 and 2014, we can see that some traditional resource-intensive commodities are gradually changed from net export to net import, and capital-intensive goods from net import to net export. Calculated using the Chinese and German official trade data, the potential value of trade between China and Germany in 2014 is between 0.92-0.95, indicating that there is still improvement potential for trade between China and Germany. The trade potential value of Chinese export to Germany is 0.87, and the potential value of import is 0.97, indicating that China’s export to Germany has more potential than import from Germany.To explore the potential of Sino-German trade, especially the export potential of China to Germany, this paper proposes the following suggestions:Firstly, to improve our export competitiveness, commodity diversification should be promoted, industrial upgrading and transformation should be accelerated, the added value and technological content of products made in China should be increased. Secondly, the trade of complementary goods is to be strengthened and the comparative advantages of traditional industries to be enhanced. Thirdly, the government should strengthen the guidance of the Sino-German bilateral trade of competitive goods, actively promote the policy for trade development, improve long-term mechanism of international trade friction consultation, actively respond to trade disputes between China and Germany to maintain a good market order and to avoid vicious competition. Fourthly, the export of China’s goods with comparative advantage should be made good use of.