Sino-Latin American Trade Over 1990 To 2001: A Gravity Model Approach

Since Modern China began when a communist movement captured the control of the country in 1949, deep structural transformations have been occurring. China's economical changes and achievements have come slowly and accelerating after time. By 1994, China's total trade of goods exceeded $280 billion, becoming the tenth largest exported lagging behind developed countries only. Moreover, China's accession to the Trade World Organization (WTO) enhanced competitiveness of Chinese goods. In spite of China's already influential performance in the world economy, observers predict a steadily growth of China, which might align it with developed countries in the early 21st century. In this context Latin America and the Caribbean (LAC) are to enforce and deepen trade with China.This paper addresses two issues: a) To examine the relevancy of several factors: country economical size, primary and secondary-sectors of production and corruption after controlling for distance and language-cultural-ties, in explaining trade flows between the China and LAC regions in the years 1990-2001. b) To analyze the effects of the largest Latin American Free Trade Agreements (FTAs) on intraregional and international trade in the years 1980 to 2001. For this purpose I use the well-know gravity model.Researching a set of data obtained from the "The Statistical Yearbook for Latin America and the Caribbean" and "China Statistical Yearbook", several issues for both. I find statistically significant evidence that GDP growth is associated with trade increase. As per income, it accounted negatively for Latin American trade. Corruption effects, measured as TI (CPI) index, has negatively affected trade in an equivalent of 7.5% of the language effects on Sino-LAC trade over 1990-2001. Disaggregating home bias into home country specific home bias, I find that China's economical and trading presence has been consolidating in LAC. Finally I find statistical evidence that AC, MERCOSUR and LAIA agreements played an important role in intra-LAC-trade.The paper is organized as follows: Chapter I, defines the scope of the research and makes some preliminary considerations about LAC. Chapter II, contains an overview of the gravity model. Chapter III addresses the methodology and data considerations. Chapter IV: examines the results and contains the sensitivity analysis with focus on possible heteroscedasticity problems. Chapter V concludes and designs the implications. Appendix A: Contains the references and bibliography. Appendix B: Detail of the data sources. Appendix C: encloses the tables and figures of the results, and Appendix D: shows some descriptive summary of Sino-Latin American trade.