The Effects Of Trade Cost On Trade Development

Trade cost is almost completely ignored by the traditional international trade theories, but it is widely existed in the reality of international trade activities. In fact, the trade cost is an important variable in international economics, also it is the common destination to explain many doubts in the field of international trade, and plays an important role in the international specialization and trade model. In addition, with the gradual innovation and development of trade theories, trade cost has become the core concept in the theory frameworks of "new trade theory", "new new trade theory" and "new economic geography".Since the reform and opening up over 30 years, under the background of the progress of science and technology and economic globalization, China’s foreign trade has experienced sustained prosperity, and has become the world’s biggest trading country in 2013, but it is not a trade power. In 2011, the 12th five-year plan clearly put forward to "speed up the transformation of the mode of foreign trade development". The report of the Eighteenth National Congress of the Communist Party of China in 2012 further pointed out to "accelerate the transformation of foreign economic development, promote the openness to the direction of optimizing the structure, expanding the depth, improving the efficiency". To a large extend, China’s business just enters the low end in the international industrial division. The processing trade has a big proportion. The trade commodity structure is not reasonable. The export of high polluting, high energy-consuming resource takes a relatively high proportion, which seriously impacts on the ecological environment, hinders the sustainable development of China’s social economy. Trade cost was valued at 170%(tariff equivalent)in industrialized country (Anderson & Wincoop,2004). As a developing contry, how much is the trade cost? How the changes in trade cost affect trade development? These are the questions which need to be solved. Therefore, on the basis of measuring trade cost, this paper takes the trade cost as an additional factor endowment, introduces the traditional theory of comparative advantage and develops the theory and model of comparative advantage. This paper analyzes the effects and mechanisms of trade cost on the trade development based on the expanded theories, which have important theoretical and practical value for promoting the harmonious and sustainable development of foreign trade. Theoretical significances are following:(1) The paper takes the trade cost as an additional factor endowment, introduces the traditional theory of comparative advantage and develops the theory and model of comparative advantage. (2) The existing literature, concentrating on the effects of trade cost on the bilateral margin of trade growth, has ignored the role of the trade promotion agencies. On the basis of "new new trade theory", given that the trade promotion agencies may reduce the uncertainty caused by asymmetric information and help the enterprises to increase access to markets, the paper is a more comprehensive study of China’s trade development, and the results may be different from existing research and can enrich "new new trade theory" to a certain extent. (3) When studying the effects of trade cost on the structure of trade pattern, this paper incorporates trade cost into the "orthodox" intra-industry trade theories model, and studies the different effects of homogeneous and differentiated products’s trade cost, expanding the intra-industry trade theories. Practical significances are following:the current world economy has being in a major adjustment period of great change. The subprime crisis of the financial tsunami is a significantly longer period features of systemic crisis, and the internal and external environment of China’s foreign trade has undergone profound changes, which the resources and environmental constraints increasingly have been strengthened, the exports being in the low end of global value chains, the foreign trade enterprise anti risk ability becoming low, trading partners becoming too concentrated, frequent trade friction and other issues have become increasingly prominent. The extensive growth in exports of traditional pattern is difficult to continue, and the development mode of foreign trade should be changed. All these problems are closely related to the trade cost.This paper totally includes nine chapters.Chapter I, Introduction. The main contain is to introduce the background and significance of the research, related research, research methods, contents and structure of the research, innovations and inadequates of the paper.Chapter II, The general theory of trade cost. It combs the conception of trade cost defined by domestic and foreign scholars, and summarizes the definition of trade cost. On this basis, we make a brief review and comments on the evolution of theories related to trade costs (the circulation cost of Marxist Economics, the transaction cost of New Institutional Economics, the transaction cost of New Classical Economics, the trade cost of International Trade Theory).Chapter III, Measurement and affecting factors of trade cost. First of all, it introduces the evolution of measure methods on trade cost. On the basis of them, this part takes the latest methods to measure the bilateral trade costs of China and its 17 major trading partners from 1993 to 2011. Secondly, it analyzes the influence factors by using the panel data model. The result shows that the trade cost between China and its 17 major trading partners has fell significantly from 1993 to 2011 especially after China’s accessing to the WTO. The empirical result show that the trade cost is related to the space distance, the openness of trading partners, common boundary, common free trade areas.Chapter IV, Effects of trade cost on trade growth. First of all, on the basis of trade cost measurement model, it makes quantitative analysis on the influence of the bilateral trade cost on the overall growth of trade between China and its major trading partners. Secondly, on the basis of "new new trade theory", we divide the trade growth into the intensive margin and the extensive margin considering the role of trade promotion agencies, and establish dynamic panel data model to test the effects of trade cost on the binary marginal of exports growth. The result shows that the decreasing of trade cost promotes the growth of China’s foreign trade. From 1993 to 2011, the average growth of bilateral trade between China and its 17 major trading partners is 3461.680%, the contribution rate of economic growth is 57.503%, the contribution rate of similarities in the aspects of economic development is-2.308%, the contribution rate of trade cost reduction is 52.659%, and the contribution rate of other factors is -7.852%. The empirical result shows that the trade promotion agencies can significantly promote export growth in the intensive margin and extensive margin by affect trade cost, and the effect on extensive margin is greater than the intensive margin, and whether the intensive margin of export growth or the extensive margin, the promoting roles of the trade promotion agencies on the high-tech industry products are all higher than those of low technology products.Chapter V, Effects of trade cost on the region structure of foreign trade. First of all, this paper briefly introduces the basic situation of China’s region structure of foreign trade from 1993 to 2011. Secondly, it develops the traditional comparison advantage theory model by making the trade cost as a factor endowment. It uses the panel data model to make empirical analysis on the effects of trade cost on the China’s region structure of foreign trade on the basis of taking the major trading partners data as sample. The result shows that there is a significant expansion in China’s region structure of foreign trade, and the increasing growth keeps quickly, but the proportion of emerging markets is low because the lower base takes effect. It is inevitable to increase the diversifying export market. The the co-integration test can be operated according to the result of of panel unit root test, and the result shows that there is a long-term stable cointegration relationship between the export to main trading partners and bilateral trade costs. Regression analysis shows that trade cost is the key fator which can determine the comparative advantage of trade, and it has an impact on the choice of partners and trade region structure.Chapter VI, Effects of trade cost on the structure of trade pattern. First of all, on the basis of national and product classification, it measures the trade level of intra-industry with major trading partners to reflect the current trade pattern structure in China by selecting the Grubel-Lloyd index. Secondly, from the new perspective of distinguishing homogeneous and differentiated products trade cost, by bringing the trade cost into the "industry trade theory model orthodox", taking the trade data of SITC three digit standard classification between China and its 15 major trading partners as samples, the part uses panel data model to study the effect of trade cost on the trade pattern structure. The result shows that China’s intra-industry trade level is not high during 2002-2011. The empirical result shows that the relative trade cost of differentiated product and the absolute trade cost of homogeneous product have absolutely different effect on the intra-industry trade level. While the relative trade cost of differentiated product hinder the intra-industry trade, the absolute trade cost of homogeneous product promotes the intra-industry trade. In addition, the foreign direct investment has weak negative effect. Moreover, there are differences in the marginal effect of relative trade cost of differentiated product and the absolute trade cost of homogeneous product on the intra-industry trade due to the difference of factor endowments. When the difference of factor endowments is bigger, the negative effect of the relative trade cost of differentiated products on the intra-industry trade is greater, and the promotion role of the absolute trade cost of homogeneous product becomes higher.Chapter VII, Effects of trade cost on the structure of trading commodities. Firstly, it analyzes the evolution of trading commodity structure in China from 1993 to2011. Secondly, according to the UN, the trade commodity structure can be divided into resource intensive products, labor-intensive products and capital intensive products. By using the average value of bilateral trade cost of China with major trading partners in the years of 1993-2011, the paper utilizes time series data model to analyze the effects of trade cost on the trading commodity structure. The result shows that the total exports of primary products gradually maintain the rising trend, but the status gradually declines. Meanwhile, the total exports of manufactured goods gradually maintain the rising trend, and the status gradually strengthens, which has been in a dominant position. The exports of resource intensive products are increasing, but the proportion is lower. And the proportion enters a permanent decline phase. The exports of capital intensive products are on the increase, and the proportion of intensive products are increasing. The exports of labor-intensive products are on the increase, but the proportion of labor-intensive products are decreasing. The proportion of final products composed of capital products and consumption products is higher than the intermediate products. The co-integration test can be operated according to the result of the unit root test, and the result of co-integration test shows that there is long-term cointegration relationship among trade cost, foreign direct investment, level of economic development measured by GDP and the structure of trading commodities. Regression analysis shows that the trade cost will increase the proportion of resource intensive products and labor-intensive products, but decrease the proportion of capital intensive products.Chapter Ⅷ, Effects of trade cost on the structure of trade mode. Firstly, this part analyzes the change of the structure of trade mode from 1993 to 2011. Secondly, we utilize time series data model to analyze the effect of trade cost on the structure of trade mode by using the average value of bilateral trade cost of China with major trade partners from 1993 to 2011.The result shows that since the the reform and opening up, great changes have taken place in the structure of trade mode. Among them, in the nineteen eighties the general trade plays greater role, but in the nineteen nineties, the processing trade have gradually been the most part, while the proportion of other trade in the total has been very small. The empirical result shows that the trade cost hinder the proportion of general trade, processing trade and other trades. The effect of trade cost on the general trade is larger than the processing trade and other trades.Chapter ⅥⅢ, Conclusions and suggestions. Firstly, it makes some basic research conclusions. Secondly, According to the actual situation of China’s economy and trade, it holds that there some suggestions to promote the sustainable development of foreign trade policy:increasing the openness, improving infrastructure construction, optimizing domestic investment environment, encouraging enterprises to technological innovation, perfecting the structure of the export commodities.