The Influence Of Political Relations Between Countries On Trade Flows

The study of the effect of political relations between countries on international trade has a long history,which can be traced back to the 1940s.This issue has always been the focus of debate among many scholars in the field of international political economy.The impact of the political relations between countries,especially the conflict,on international trade,may have three situations,positive,negative or even not significant.Studies have shown that these three relationships all exist.In the 21st century,peace and development is the theme of the world.There are hardly big wars happened among nations and the world economy has never been developing so fast and gotten so much improvement.So in resent years what influence dose the political relations between countries have on the international trade?This thesis will deal with that question.The purpose of this study is to examine whether the political relations between countries over the past decade have affected international trade.On the handling of political relations between countries,this paper uses "China's Foreign Relations with Major Powers" database from Tsinghua University,which contains monthly data on political relations indexes between China and 12 countries(Japan,Korea,Vietnam,India,Indonesia,USA,UK,France,Germany,Russia,Australia,Pakistan)from 1950 to 2016.We choose eleven countries(Japan,Korea,Vietnam.India,Indonesia,the United States,Britain,France,Germany,Russia,Australia)of them as the research objects,because they are China's important trading partners.We use quarterly data to investigate the effects of political relation on trade flows between China and certain countries in our objects from 2005 to 2015.Based on the traditional trade gravity model,the political relationship index was introduced and the trade gravitational equation was constructed.The mixed OLS,fixed effect model and Poisson pseudo-maximum likelihood(PPML)method were used to analyze the problem.First,the whole sample is returned.No matter what kind of regression results show that the short-term political relations(quarterly index)between China and certain countries have no significant effect on the bilateral trade.Because the influence of political factors on trade may be lagging behind,then the lagged entry of political relations is re-analyzed.And the political relations lagging behind two have a significant positive impact on the bilateral trade.Then,11 countries were divided into two sub-samples according to the region,the East Asian countries(Japan,Korea,Vietnam,India,Indonesia)and non-East Asian countries(the United States,Britain,France,Germany,Russia,Australia),in order to investigate whether the political relations between China and countries in different regions have the same effect on trade.Finally,according to the results of the regression,it is concluded that firstly,the political relations between China and 11 countries have a significant positive impact on trade.Secondly,the change of political relations in the short term has no obvious impact.At least six months later,the positive effect will appear.Thirdly,China's political relations with countries in different regions have different effects on bilateral trade.The influence of China's political relations with the East Asian countries on bilateral trade is not significant while political relations with non-East Asian countries have shown a significant positive impact on bilateral trade.The reasons may be that in East Asian region,there are some other factors that weaken the influence of political relations on trade,such as geographical advantages,cultural similarity,the establishment and negotiation of multiple free trade agreements and China's increasing economic power.In another word,the sensitivity of trade to political relations in East Asian area is lower than that between non-East Asian countries.