CAGE Analysis of China’s Trade Globalization

Gravity model of international trade states that trade interaction between two countries is in direct proportion to their size measured by Gross Domestic Product and in inverse proportion to the geographic distance. Conley and Ligon (2001) argued that the relevant economic distance between countries is often not the geographic distance. Thus, this study uses original datasets on economic distance to structure observed variations, to decompose the multidimensional CAGE distance framework of globalization derived from the Newton’s Law of gravitation as it applies to China’s international interaction, to evaluate bilateral trade patterns in identifying and prioritizing the importance of cross-border flows and differences that accounted for the development of China’s global strategies. This study confirms that distance must be accounted for in the decision making of any country’s globalization process or any firm’s global expansion as the effects on cross-border economic activities are enormous.