Strategic Economic Partnerships, Exchange Rate Policy and Agricultural Trade: A Gravity Model Analysis of China’s Agricultural Trade Flows

Abstract

Agricultural trade in China is greatly influenced by government policy activities particularly regional integration agreements, strategic economic partnerships and exchange rate policy. China’s agricultural sector has grown significantly in the past two decades however the factors that have led to this growth have not been fully explored. This study applied the Gravity model in analyzing China’s bilateral agricultural trade flows with its major agricultural trading partners namely USA, Brazil, Japan, Thailand, Australia, Indonesia, Canada, Malaysia, Russia and Hong Kong. The study utilized trade flow panel data spanning over 15 years, from the year 2000 to 2014. Estimation results revealed that economic size, market size, distance between capitals, annual average market exchange rate, regional integration/strategic economic partnership status, cultural beliefs and language were all significant factors in explaining China’s bilateral agricultural trade flows for selected commodities in the period under review.