Interregional Border Effect And Trade Expansion

Under the background of economic globalization, the connection between domestic market and international market become closer, the development of interregional trade is becoming more and more important. A series of problems are arising in the process of China’s economic reform, one of them is the segmentation of regional market. As a nation with a relatively huge domestic market, China is easier to achieve scale economy and a sufficient competition. However, due to various reasons, Deepening regional division is not enough in China, domestic interregional trade has not yet been fully developed, the segmentation of domestic market does exist in China, which leads to low efficiency of domestic resources distribution, not to mention the optimal allocation of international resources. Moreover, regional market segmentation hinder the expansion of enterprise market scale, achievement of scale economy, the upgrading of the industrial structure, and then, it would impact the status of China’s enterprises in the international market. In the long run, domestic market affords a natural training field for enterprises to compete, they lose this opportunity because of the segmentation of domestic market. The importance of domestic interregional trade is which can form the competition of the domestic market. However, the segmentation of domestic market depresses the competitive aggressiveness of enterprises in domestic market, and then, depressing the enterprises competition in international market. So some people believe that, the serious lag of interregional trade is the cause to seek foreign trade, which is not a natural extension of the expansion of the domestic market. Is foreign trade a product of the serious lag of domestic interregional trade or an extension of the natural expansion of the domestic market? In order to explore which is the real cause of foreign trade, it is necessary to research the relation between domestic market integration process and the expansion of foreign trade.This paper first review the relevant research literature; secondly the causes of interregional trade border effects were briefly summarized; then on the basis of the gravity model, adopting the interprovincial railway freight exchange data from1992to2012of China, and establishing the border effect model for china interprovincial trade, to estimate the size and tendency of border effect of China inter-provincial trade. To measure the provincial border effect is helpful to accurately reflect the degree of domestic market integration. Then we employ time series analysis according to the provincial border effect and the yearly amount of china exports of goods and services in expenditure approach in the past21years, to test the relation between domestic market integration process and the expansion of foreign trade. To explain how does the integration of domestic market impact on export trade expansion and in what degree? Finally, proposing appropriate countermeasures, that is to say, what measures should we take to achieve the goal of economies of scale and integration with the world economy to eliminating domestic trade barriers.The main conclusions are as follows:Firstly, the reason of Interregional Trade border effect produced is intricate. Including local protectionism, to have independent economic jurisdiction, performance evaluation or rent-seeking needs, local government management behavior is not standardized and different interregional policies are the causes of interregional trade barriers, but also the causes of interregional trade border effects.Secondly, the border effect of interregional trade on export trade has a dual role. On the one hand, the reducing of interregional trade barriers may contribute to the growth of foreign trade; on the other hand, reducing the Interregional trade barriers may also lead to the substitution of foreign trade and domestic trade. Generally speaking, in the short term, the substitution effect is greater than the promoting effect; in the long run, promoting effect is greater than the substitution effect.Thirdly, the border effects of interprovincial trade show the overall downward trend. The measure results on the border effect of interprovincial trade shows that from1992to2012China’s interprovincial trade in goods and services do exist the phenomenon of "local preference", which means that the border effect does exist between Chinese provinces. After controlling the size of the economy, trade distance, proximity effect, multilateral resistance factors, the border effect of interprovincial trade shows overall downward trend in the21years, and its size is between2to4.Fourthly, reducing the border effects of interprovincial trade contributes to the promotion of China’s export trade expansion. What we can see from the co-integration regression equation is, the reducing of border effects of interprovincial trade under the long-term situation, which means that the promoting effect of interregional trade expansion on export trade expansion is greater than the substitution effect, and whenever China’s interprovincial trade border effect drop1%, China’s total exports of goods and services will increase by0.893%by expenditure approach. That is to say the empirical results are consistent with the long-term theoretical analysis.Compared to the existing literature, this article might have two innovations as follows:First, the estimation method on interprovincial trade flows; Second, quantitative analysis on the relationship between Interregional Trade border effects and export trade expansion. Existing literature on Interregional Trade and foreign trade relations remain essentially at the theoretical level, the quantitative analysis on the relationship between border effect of interregional trade and foreign trade expansion, more intuitive studies on the influence relationship between them and the effect sizes were less.