Empirical Analysis Of Trade Potential And Trade Efficiency Of China And Indonesia

Indonesia is the largest economy and the only G20 member of ASEAN countries,and enjoys important political and economic status within ASEAN.Indonesia and China are prominent neighbors with each other and innate partners with extensive mutual interests.In October 2013,President Xi Jinping proposed the‘21^st Century Maritime Silk Road’initiative during his visit to Indonesia.At the same time,China and Indonesia jointly decided to promote the relationship into comprehensive strategic partnership.Two countries even have reached a consensus on strategic docking between the‘21^st Century Maritime Silk Road’and the‘Global Ocean Fulcrum’.Under the cooperation framework,the bilateral trade between China and Indonesia has obtained an outstanding achievement.Meanwhile,bilateral trade also confronts with challenges.Therefore,in the context of the new era,a new understanding on the bilateral trade’s characteristics,influencing factors,and cooperation potential will help to promote the future development of bilateral trade between China and Indonesia.For solutions of the question above,this article basing on the Comparative Advantage thought,on advance,discusses about characteristics of Sino-Indonesia bilateral trade and investigates the nature behind phenomena.According to the analysis,the bilateral trade between China and Indonesia displays these features:great fluctuation within short-term,strong compliant,Indonesia gains narrowed Trade in Value Added,which makes her trapping into trade deficit.With the preliminary qualitative analysis,this article applies the time-variant SFA model to deeply analyze.Do a precise calculation on factors.Furthermore,basing on the computation,figure out the trade efficiency and potential.The basic conclusion of this article:Both China and Indonesia’s GDP per capita pull the increase in bilateral trade.However,the export from China to Indonesia is more sensitive to the variations of GDP per capita.GDP per capita increases will promote export increase more.The monetary and financial factors are not significant in the Sino-Indonesia bilateral trade.It maybe that the Currency SWAP between China and Indonesia has reduced the risk from exchange rate volatility.The improvement of port infrastructure in Indonesia and engaging in FTA can promote the trade facilitation and push forward bilateral trade.The outcome also tells us that,comparatively,the efficiency of export from China to Indonesia is higher but potential is lower,while bilateral trade between China and Indonesia is relatively inefficient and has greater potential.This can explain from the other side that the efficiency of import is lower but potential is higher.So,there is still a large room for the increase in the export from Indonesia to China.The main innovation of this article is to quantify the factors that affect the bilateral trade between China and Indonesia,and establish a stochastic frontier gravity model to measure the efficiency and potential of bilateral trade between China and Indonesia through empirical results.Features provide data support and theoretical basis for the research on bilateral trade between China and Indonesia.Basing on the empirical conclusions,five policy suggestions are put forward.Firstly,to enhance the level of political mutual trust between China and Indonesia,to clarify the political intentions of the two sides,and to promote cooperation on the basis of a consensus.Secondly,it can be negotiated with Indonesia to improve the bilateral economic and trade cooperation mechanism,and it can also provide a policy support for trade by deepening reforms.Thirdly,to expand intra-industry trade between China and Indonesia.Both the vertical intra-industry trade and horizontal intra-industry trade should be taken into account.Fourthly,by investing to promote bilateral trade between China and Indonesia.Chinese companies can invest in infrastructure construction and industrial investment to push Indonesia’s economic up,while promoting industrial upgrading and bilateral trade development.Fifthly,to build a platform for trade and cultural exchanges.Information exchange and cultural transmission lay solid foundation for the bilateral trade.