A Gravity Model Analysis of China’s Bilateral Trade Flows: The Role of Free Trade Agreements and Exchange Rates

Abhishree .

doi:10.48001/jbmis.1101003

Abhishree . Independent Researcher https://orcid.org/0009-0007-4016-2062

DOI: https://doi.org/10.48001/jbmis.1101003

Keywords: Gravity model, International trade, Regression analysis, panel data

Abstract

In the field of International Economics, the gravity model of trade has been one of the most successful empirical models guiding trade-policy decisions by nations. This paper aims to incorporate the theoretical foundations into the real world of trade flows between China and rest of the countries. An augmented gravity model is applied to study the impact of two variables, free trade agreements and nominal effective exchange rate on bilateral trade flows. Multiple regression analysis is carried out on a panel data consisting of trade flows with 224 countries from 1992-2015. The estimated results reveal a positive and significant influence of FTA on exports and imports. NEER displays a positive, though not significant, relationship with China’s imports and negative with exports.

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