Border Trade and Regional Integration

• Date: 01 May 2014
• DOI: http://doi.org/10.1111/rode.12085
• Published date: 01 May 2014

Border Trade and Regional Integration

Ying Ge, Yin He, Yeheng Jiang, and Xiaopeng Yin*

Abstract

Although it is an important building block of regional integration, very little research has investigated

border trade between neighboring countries. This paper f‌ills this gap by examining the patterns and deter-

minants of China’s border trade with its neighboring countries. First, a disaggregated, f‌irm-product level

trade data is used to provide a detailed overview of border trade growth and dynamics. The paper shows

that trade liberalization has signif‌icantly encouraged new f‌irms to enter the export market, and new private

f‌irms account for the majority of the expansion in border exports and the shift toward more sophisticated

products. Second, a gravity model is used to investigate the determinants of border trade. The results

suggest that multilateral and regional integration, market size and institutional quality play important roles

in promoting border trade.

1. Introduction

Border trade is def‌ined as the exchange of goods and services across international

land borders within a reach of up to 30 km. Studies on border trade are very limited

owing to the diff‌iculty of recording border transactions and their relatively small

scale. While border trade only accounts for a small proportion of total international

trade, it has important effects on the economic development of border regions and

plays a signif‌icant role in the regional integration of inland areas.

China is a particularly interesting case in the study of border trade because it has

experienced rapid economic growth combined with sharply increasing regional dis-

parities. It is well recognized that international trade is one of the main engines of

economic growth and access to international trade is a driving force behind the

substantial gap between the development of coastal and inland areas (Gao, 2004;

Fu, 2004; Kanbur and Zhang, 2005). Figure 1 shows the geographic distribution of

the regions of China involved in border trade. China borders fourteen countries

(Afghanistan, Bhutan, Burma, India, Kazakhstan, Kyrgyzstan, Laos, Mongolia,

Nepal, North Korea, Pakistan, Russia, Tajikistan and Vietnam) and has an inland

border of more than 22,000 km. Eight provinces are involved in border trade: Liao-

ning, Jilin, Heilongjiang, Inner Mongolia, Xinjiang, Tibet, Yunnan and Guangxi.

Most of these provinces are located in inland areas far from the coastline. The

regional income of these provinces is below the national average, with Yunnan,

Tibet and Guangxi the least developed provinces in China.1Border trade has ben-

ef‌ited the local economies in these areas by promoting local production and service

provision, and increasing local employment and household income. Border trade

* Yin: No. 10, Huixin Street East, School of International Trade and Economics, University of Interna-

tional Business and Economics, P.O. Box 119, Beijing, China, 100029. Tel: +86-10-6449-3689; Fax: +86-10-

6449-3042; E-mail: xyin_ca@yahoo.com. Ge, He and Jiang: School of International Trade and Economics,

University of International Business and Economics, Beijing, China. The authors would like to thank an

anonymous referee for helpful comments. Funding from University of International Business and Econom-

ics is gratefully acknowledged.

Review of Development Economics, 18(2), 300–312, 2014

DOI:10.1111/rode.12085

© 2014 John Wiley & Sons Ltd