Does Political Risk Matter for China's Trade with ASEAN and MENA Countries? A Belt Road Initiative Perspective

This study examines the role of political risk in deterring China's trade flow with her 132 trading partners with particular attention to the Association of Southeast Asian Nations (ASEAN) and the Middle East and North African (MENA) countries for 1984-2015 in the Belt Road Initiative (BRI) fra...

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Bibliographic Details
Published in:The Chinese economy 2022-05, Vol.55 (3), p.188-207
Main Authors: Goswami, Gour Gobinda, Panthamit, Nisit
Format: Article
Language:English
Subjects:
ASEAN
ASEAN10 + 3
ASEAN10 + 6
ASEAN10 + China
belt road initiative
China
cultural rigidities
Domestic partners
dynamic panel
Factor analysis
GATT
GDP
GMM
Governance
governance failure
Gravity
gravity equation
Gross Domestic Product
ICRG
institutional risk
MENA
one belt one road
partners' adverse feeling
Political risk
Risk factors
silk road
South East Asia
Trade
Trade flows
Trading
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Summary:This study examines the role of political risk in deterring China's trade flow with her 132 trading partners with particular attention to the Association of Southeast Asian Nations (ASEAN) and the Middle East and North African (MENA) countries for 1984-2015 in the Belt Road Initiative (BRI) framework. Using twelve political risk indicators from International Country Risk Guide (ICRG), we use factor analysis to retrieve three underlying factors: 'Cultural Rigidity,' 'Governance Failure,' and 'Partners' Adverse Feeling.' After combining these factors into a dynamic system GMM Gravity equation, we examine their impact on China's trade flow. As we control for Gravity variables and these risk factors, BRI has been found effective for China with MENA countries, ASEAN10, and ASEAN10 + 3 (China, Japan, and South Korea) but detrimental to trade flow within the ASEAN10 + 6 (China, India, Japan, S Korea, Australia, and New Zealand) setup. Among the three factors, 'Partners' Adverse Feeling' is the most substantial deterrent, followed by 'Cultural Rigidities.' Most of the traditional Gravity coefficients like domestic and partner country's GDP, domestic and partner country's per capita GDP, distance, GATT membership of China and Partners, take their right sign and significance. 'Governance failure' has been found as a significant deterrent neither in ASEAN nor in MENA setup. Therefore, China should strive to improve cultural bottlenecks with her partner countries and improve upon the existing adverse perception in enhancing her trade flow with these countries.
ISSN:1097-1475
1558-0954
DOI:10.1080/10971475.2021.1958454