Analyzing Bilateral Trade Barriers under Global Trade Context: A Gravity Model Adjusted Trade Intensity Index Approach

• DOI: http://doi.org/10.1111/rode.12087
• Date: 01 May 2014
• Published date: 01 May 2014
• Author: Yao Li,Bo Chen

Analyzing Bilateral Trade Barriers under Global

Trade Context: A Gravity Model Adjusted Trade

Intensity Index Approach

Bo Chen and Yao Li*

Abstract

There are two strands of approaches gauging bilateral trade barriers: the gravity models and the trade

intensity index. This paper integrates these two approaches by developing a new trade intensity index. This

so called “gravity model adjusted trade intensity” (GMATI) index can reflect the short run trade barriers

while controlling for the long run ones under global trade context. Based on 182 countries’ export data

during 1988–2005, we first estimate the expected bilateral trade level using a gravity model with compara-

tive advantage effects. Then we apply the GMATI index for China. While the conventional trade intensity

index shows that China trades less than its expected level, our GMATI index nevertheless suggests the

opposite in most cases. It indicates that after considering the effect of country characteristics such as dis-

tance, economic size and comparative advantage, China’s world trade face less trade barriers than the

world average level.

1. Introduction

How to measure trade barriers (both tariff and non-tariff) between country pairs is

one of the central questions in international trade. We argue that the trade barriers

can be decomposed into two parts: the “objective” barriers whose impacts can only be

reduced in the long run, such as distance and other geographical characteristics, simi-

larity in economic structure, and other relevant cultural and historical relationship

and so on; the “subjective” barriers which can be reduced or even removed in the

short run, including tariff barriers and non-tariff barriers such as technical barriers

(Bao and Chen, 2013) and antidumping (Moore and Zanardi, 2011). Therefore, what

concerns the researchers and policy-makers the most are the subjective barriers. An

indicative measure for trade barriers should consider the subjective barriers (both

tariff and nontariff) comprehensively while controlling the impacts of the objective

barriers and other relevant factors.

Many attempts have been made towards measuring the impact of subjective barri-

ers between country pairs. In general, they can be categorized into two strands of lit-

eratures. Drysdale and Garnaut (1982) did a literature survey and identified two

approaches for systematic studies of bilateral trade: the gravity model introduced by

* Li: No. 2006, Xiyuan Ave, School of Management and Economics, UESTC, West Hi-Tech Zone,

Chengdu, Sichuan, 611731, P.R. China. Tel: +86-13-55100-8140; E-mail: liyao@uestc.edu.cn. Chen: School

of International Business Administration, SHUFE, P.R. China. The authors are grateful to two anonymous

referees and participants at the 2012 IEFS-China conference. We also thank Christopher Edmonds for

early discussion on the topic. Chen is grateful to financial supports from the Natural Science Foundation of

China (71103116) and the Innovation Program of Shanghai Municipal Education Commission (12ZS071).

Li acknowledges the financial support from the China National Social Sciences Foundation (10XJL0019).

Review of Development Economics, 18(2), 326–339, 2014

DOI:10.1111/rode.12087

© 2014 John Wiley & Sons Ltd