Infrastructure and Trade: An Empirical Study Based on China and Selected Asian Economies

Abstract

We empirically determine the role of different forms of infrastructure on a country’s trade. We use an augmented gravity model that incorporates infrastructure in the estimation of merchandise trade flows. We take panel data, including China and 21 selected Asian economies, from 1999 to 2018. We find that the panel ordinary least squares (OLS) and poisson pseudo maximum likelihood (PPML) model estimations prove to be significant. Proxies for Transport Infrastructure including roads, railways, and sea transport, and Proxies for information and communication technology (ICT) infrastructure consisting of mobile, electricity, and internet connections show a strong and positive impact on trade while air transport and landline phone connection have an unexpected negative effect on trade. The positive estimates for quality of infrastructure signify that high standards of Transport and ICT infrastructures lead to increased trade flows of the exporting and importing countries. Results also show that cultural similarity leads to increased trade flows between China and its trading partners in Asia.