Bilateral political relations and trade gains between countries: Perspective from value‐added exports

Hui Jiang, Churen Sun and Qing Qin

Pacific Economic Review, 2025, vol. 30, issue 2-3, 91-120

Abstract: The smooth operation of the GVCs division system highly depends on the stable relations between countries and the disharmonious and unstable international political relations will adversely damage the international economic and trade relations. The development of international trade has shifted from economic logic to political logic. From the perspective of value‐added exports, this paper empirically examines the impact of bilateral political relations on the real trade gains between countries, using the United Nations General Assembly Voting Data, World Input–Output Data and Penn World Table from 2000 to 2014. The results show that: (i) the improvement of bilateral political relations can significantly increase a country's value‐added exports by reducing the “cost effect” and enhancing the “industrial linkage effect.” After considering the structure of value‐added exports, index replacement, model estimation method, dimension variation and the endogeneity, this result is still robust. (ii) Heterogeneity analysis shows that the value‐added exports of countries with weak economic power, countries with strong institution, industries with comparative advantage, and downstream industries are more sensitive to bilateral political relations. This study deeply reveals the correlation between political factors and global economic development and provides a strong reference for promoting the recovery of the current global economy and the sustainable development of GVCs.

Date: 2025
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