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Bilateral trust and trade: Evidence from China

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  • Weibo Xing
  • Li‐An Zhou

Abstract

By changing transaction costs, trust can be a determinant of interregional economic exchange. Based on data sets of bilateral trust and trade at provincial level in China, this study investigates the trust–trade relationship empirically. As a channel of affecting bilateral trade, bilateral trust is incorporated into gravity models. By controlling for institutional quality, labour migration and other economic indicators, the baseline results show that the bilateral trust is positively correlated with the bilateral trade significantly. The sensitivity tests using an alternative estimation of interprovincial trade in China also confirm this positive trust–trade relationship. In addition, we use an instrumental‐variable estimation to control for the endogeneity of bilateral trust, and find that the trust–trade relationship is robust. This relationship seems to reveal that improving bilateral trust can be a new channel of boosting bilateral trade.

Suggested Citation

  • Weibo Xing & Li‐An Zhou, 2018. "Bilateral trust and trade: Evidence from China," The World Economy, Wiley Blackwell, vol. 41(8), pages 1918-1940, August.
    • Handle: RePEc:bla:worlde:v:41:y:2018:i:8:p:1918-1940
    DOI: 10.1111/twec.12583
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    Cited by:

    1. Gideon Onyewuchi Ndubuisi, 2020. "Contractual frictions and the patterns of trade: The role of generalized trust," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 29(7), pages 775-796, October.
    2. Yi Chen & Ziying Fan & Xiaomin Gu & Li-An Zhou, 2020. "Arrival of Young Talent: The Send-Down Movement and Rural Education in China," American Economic Review, American Economic Association, vol. 110(11), pages 3393-3430, November.
    3. Wu, Xiaokang & Yu, Jinping, 2023. "Does dialect difference impede patent transaction? Evidence from China's inter-city patent license data," Technological Forecasting and Social Change, Elsevier, vol. 187(C).
    4. Limin Du & Zhenhao Lai & Jinchuan Shi & Zheng Wang, 2024. "Comrades from the town: How did a factory‐commune pairing policy during the Send‐Down Movement propel rural industrialization in China?," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(1), pages 25-47, January.
    5. Wu, Xiaokang & Yang, Jijun, 2023. "High-speed railway and patent trade in China," Economic Modelling, Elsevier, vol. 123(C).
    6. Doanh Khanh Nguyen & Van Ngoc Thi Pham & Heo, Yoon, 2019. "Impact of institutional and cultural distance on ASEAN's trade efficiency," Economics Discussion Papers 2019-57, Kiel Institute for the World Economy (IfW Kiel).
    7. Ndubuisi, Gideon & Konte, Maty, 2019. "Credit constraints and trade performance: Does trust-based social capital matter?," MERIT Working Papers 2019-046, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    8. José De Sousa & Amélie Guillin & Julie Lochard & Arthur Silve, 2020. "Trust and Specialization: Evidence from U.S. States," Cahiers de recherche 2010, Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques.

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