Discussion Paper

No. 2018-44 | May 29, 2018
China’s economic integration with the Greater Mekong Sub-region: an empirical analysis by a panel dynamic gravity model


The purpose of this study is to fill an existing gap in the literature by addressing the following research question: what are the major determinants of China’s regional economic integration with the Greater Mekong Sub-regional countries (GMS), namely; Cambodia, Laos, Myanmar, Thailand and Vietnam? The author measures the economic integration in terms of bilateral trade and foreign direct investment (FDI). In accordance with the literature, the present study adopts a panel gravity framework method to analyze the significant factors affecting the bilateral aggregate exports flows of China with five economies of the Greater Mekong sub-region. Data were collected from both the Chinese national and the international sources over the period of 23 years, spanning from 1993 to 2016. The time period was chosen on the consideration of data availability. The result shows that the gravity model is econometrically fitted to our dataset. Among other factors GDP, bilateral exchange rate, and population have a positive impact on regional trade integration with the GMS. The author´s second-stage regression analysis confirms that China’s accession to the WTO impacts positively on the bilateral trade. China’s accession to the WTO is a significant factor for facilitation of trade flows. As expected, distance hinders regional trade. Furthermore, the role of historical trade relationship between China and GMS countries is estimated in the dynamic model. The result shows that China’s trade relationship with GMS countries is determined historically.

Data Set

JEL Classification:

F14, F15


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Cite As

Saleh Shahriar, Lu Qian, and Sokvibol Kea (2018). China’s economic integration with the Greater Mekong Sub-region: an empirical analysis by a panel dynamic gravity model. Economics Discussion Papers, No 2018-44, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2018-44

Comments and Questions

Anonymous - Thanks-giving and Welcoming discussion
May 30, 2018 - 07:09

First of all, we would like to thank the editor and editorial board members for releasing our research work as disussion paper. We sincerely welcome enlightening comments of the readers ! Thanks in advance.

Anonymous - Referee Report 1
July 31, 2018 - 15:51

China’s Economic Integration with the Greater Mekong Sub-region: An Empirical Analysis by Panel Dynamic Gravity Model

This paper examines the determinants of China’s economic integration with five Greater Mekong Sub-region (GMS) economies, namely: Cambodia, Laos, Myanmar, Thailand, Vietnam. Data cover the period of 1993 to 2016 and dependent variable ...[more]

... used in this paper is total exports of China to these five countries. Their findings show that GDP, GDP per capita, openness, bilateral exchange rate and population have positive influence on bilateral export, whereas distance is an impediment to trade.

I have the following reservations about the empirical analysis:

1. Studying standard determinants of trade is not novel in the empirical trade literature. Therefore, the paper lacks any significant contribution in the literature. Authors should find some interesting element/niche/policy shift that may have contributed to economic integration of these economies.

2. A typical trade gravity models captures trade between trading partners in a dyadic framework. In this paper, authors only include exports of China to GMS countries. Their dependent variable should be real exports plus imports between country i and country j at time t.

3. The number of N (countries) is five, while the number of T (years) is 24. In the GMM model, they may run into problems of too many instruments, as the number of instruments increases with T. Yes, they can use lag limits to reduce the instrument count, but that would be a problem with such a small number of countries in a dynamic panel framework (differencing data throws away a lot of information).

4. Including lagged dependent variable in a dynamic panel framework introduces Nickell bias in the model. Authors should acknowledge this problem and its implications on the results.

5. There are many unnecessary details in the paper. Tables 1 to 5 are redundant because they hardly relate to the main context of the paper. Authors may include some discussion with appropriate references, but remove all these tables from the papers.

Saleh Shahriar, Lu Qian, and Sokvibol Kea - Reply to Referee Report 1
August 03, 2018 - 13:58

See attached file

Anonymous - Overall topic
August 06, 2018 - 05:44

The authors of the paper express their gratitude and thanks to the anonymous refree for providing some useful comments.

Anonymous - Interesting paper
August 06, 2018 - 06:03

This paper is interesting, because it makes an effort in understanding the nature of bilateral trade relationships between China and the 5 Greater Mecong Subregions. Famously, Napolean is said to have the remarks that "China is sickly, sleeping giant.But when she wakes ,the world treamble". Now nearly two century later, ...[more]

... China is truely awake. We need more empirical studies on China.

Here, two previous papers might be of importance:

1.Matthieu Bussière & Bernd Schnatz.(2009).Evaluating China’s Integration in World Trade
with a Gravity Model Based Benchmar,Open Economic Review,20:85–111,DOI 10.1007/s11079-007-9061-5

2.Dilip K. Das(2013). China’s Contribution to Recent Convergence and
Integration among the Asian Economies.Journal of East Asian Economic Integration,17(1), 55-79,http://dx.doi.org/10.11644/KIEP.JEAI.2013.17.1.259

Anonymous - Referee Report 2
August 08, 2018 - 13:37

See attached file