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Partner Similarity and The Sectoral Evolution of China's Trade

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Abstract

We study how the sectoral composition of exports and imports shapes bilateral trade flows. Building on earlier similarity indices, we introduce the Partner Similarity Index (PSI), which measures sectoral alignment between a country’s export structure and its partner’s import demand. Embedded in a gravity framework, PSI is a strong predictor of bilateral trade flows after accounting for standard gravity determinants, trade policy variables, and high-dimensional fixed effects. Applied to China and advanced economies, the index reveals growing asymmetries: China’s export basket is increasingly aligned with advanced-economy import demand, while China’s import demand has become progressively less aligned with advanced-economy exports.

Suggested Citation

  • Francois de Soyres & Ece Fisgin & Alexandre Gaillard & Ana Maria Santacreu & Henry L. Young, 2025. "Partner Similarity and The Sectoral Evolution of China's Trade," Working Papers 2026-001, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:102334
    DOI: 10.20955/wp.2026.001
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    Keywords

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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