Visible and invisible walls: world trade patterns and the end of the Cold War
AbstractThis paper revisits the empirical trade literature on East West trade in the early 1990s. Using the estimation technology commonly in use in 1989, I re-estimate a simple gravity model for 48 countries using 1988 data covering 88% of world trade and 92% of world GDP and find significant barriers to trade both in East West trade and against Chinese exports. My estimates that only cover direct trade effects and do not include spill-overs and dynamic effects (for example on long term growth) indicate that these walls together significantly reduced bilateral trade flows. Breaking down those walls according to my calculations increased world trade by 20% or 3.6% of world GDP (this amounts to a good third of the increase in global trade openness since 1990). Typically the trade impact of walls is especially strong at the regional level. Comparing the regional impact to the global impact (using trade potential in per cent of GDP), I find that the regional impact was 2 to 4 time larger than the global impact (the ratios are: Western Europe 1.8, Asia 2.3 and Eastern Europe 3.8, respectively). In 1989 the Berlin Wall and Iron Curtain exerted a much stronger impact than the â€˜invisible Chinese wallâ€™ (at the global level about 15 times as large). This is even true in the Asian trade with China where low levels of bilateral trade in 1988 are by and large explained by low levels of GDP. This does not mean that this invisible wall was less significant per se, but rather that the regional conditions in this particular case in 1988 were such that trade would be low both with and without walls. An indication of the potential impact of the â€˜invisible Chinese wallâ€™ is that its influence in terms of percentage trade reduction was stronger in developed but far away markets (in particular the Netherlands and the Nordic countries) than in less developed nearby markets (such as Malaysia, Thailand and India). This suggests that the â€˜invisible Chinese wallâ€™ would have started to bite once development in Asia took off. In order to check the latter hypothesis I perform a thought experiment introducing the visible and invisible walls in a gravity simulation for the world trade system in 2008, based on parameter estimates for 1988. I use 2008 population and GDP data and take account of the break down of a number of former Communist countries, shifts in capital cities in Nigeria and Germany and the German unification. The relative global impact of the regional walls is smaller in the less concentrated context of 2008. Introducing the hypothetical â€˜invisible Chinese wallâ€™, the simulation finds an impact on trade potential of 1% of GDP for an invisible Chinese Wall, which is comparable to the 1.5% that I find for a hypothetical â€˜re-erectionâ€™ of the Berlin Wall and Iron Curtain.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by International Institute of Social Studies of Erasmus University (ISS), The Hague in its series ISS Working Papers - General Series with number 533.
Date of creation: 05 Feb 2012
Date of revision:
Contact details of provider:
Web page: http://www.iss.nl/
China; globalisation; economic history; East West trade; walls;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bussière, Matthieu & Schnatz, Bernd, 2006.
"Evaluating China’s integration in world trade with a gravity model based benchmark,"
Working Paper Series
0693, European Central Bank.
- Matthieu Bussière & Bernd Schnatz, 2009. "Evaluating China’s Integration in World Trade with a Gravity Model Based Benchmark," Open Economies Review, Springer, vol. 20(1), pages 85-111, February.
- van Bergeijk, Peter A G & Oldersma, Harry, 1990. "Detente, Market-Oriented Reform and German Unification: Potential Consequences for the World Trade System," Kyklos, Wiley Blackwell, vol. 43(4), pages 599-609.
- Frank A.G. den Butter & Robert H.J. Mosch, 2003. "Trade, Trust and Transaction Cost," Tinbergen Institute Discussion Papers 03-082/3, Tinbergen Institute.
- Fritz Breuss & Peter Egger, 1999. "How Reliable Are Estimations of East-West Trade Potentials Based on Cross-Section Gravity Analyses?," Empirica, Springer, vol. 26(2), pages 81-94, June.
- Erzan, Refik & Holmes, Christopher & Safadi, Raed, 1992. "How changes in the former CMEA area may affect international trade in manufactures," Policy Research Working Paper Series 973, The World Bank.
- Matthieu Bussière & Jarko Fidrmuc & Bernd Schnatz, 2007.
"Trade Integration of Central and Eastern European Countries: Lessons from a Gravity Model,"
105, Oesterreichische Nationalbank (Austrian Central Bank).
- Bussière, Matthieu & Fidrmuc, Jarko & Schnatz, Bernd, 2005. "Trade integration of Central and Eastern European countries: lessons from a gravity model," Working Paper Series 0545, European Central Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lidwien Lamboo).
If references are entirely missing, you can add them using this form.