China's foreign trade policy with OPEC member countries

Abstract

Purpose - The purpose of this paper is to analyze specifications of the China’s foreign trade policy with OPEC member countries. Design/methodology/approach - The paper conducts three panel data estimations (FE, RE and FMOLS) based on the gravity model approach for bilateral trade patterns between China- 13 OPEC members over the period 1998-2014. Findings - Our findings reveal that the gravity equation fits the data reasonably well. We confirmed the existence of long term relationships between the bilateral trade flows and the main components of gravity model - GDP, income (GDP per capita), the difference in income, exchange rate, the openness level, distance and WTO membership – through the Fixed effects (FE), Random effects (RE) and the FMOLS approaches. The estimation results show that the trade pattern between China and OPEC member countries relies on the Heckscher-Ohlin (H-O) theory, thus being explained by difference in factor endowments such as energy resources and technology. Originality/value - To the best of the authors’ knowledge, this is the first attempt to examine the China’s foreign trade policy with the OPEC member countries through a gravity trade apporach