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Empirical Analysis of Factors Affecting the Bilateral Trade between Mongolia and China

Bayarmaa Ganbaatar (), Juan Huang (), Chuanmin Shuai (), Asad Nawaz () and Madad Ali ()
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Bayarmaa Ganbaatar: School of Economics and Management, China University of Geosciences, Wuhan 430074, China
Juan Huang: School of Mathematics and Physics, China University of Geosciences, Wuhan 430074, China
Chuanmin Shuai: School of Economics and Management, China University of Geosciences, Wuhan 430074, China
Asad Nawaz: Jiangsu Key Laboratory of Crop Genetics and Physiology, Key Laboratory of Plant Functional Genomics of the Ministry of Education, College of Agriculture, Yangzhou University, Yangzhou 225009, China
Madad Ali: School of Public Affairs, University of Science and Technology of China, Hefei 230026, China

Sustainability, 2021, vol. 13, issue 7, 1-17

Abstract: This study analyzes the factors influencing the bilateral trade between Mongolia and China using the trade gravity model, principle component analysis (PCA), unit root test, bound test, and the estimation of coefficients in a panel data set from 1996–2019. A total of 9 variables including exports, gross domestic product (GDP), population, geographical distance, cultural distance, trade agreements, tariffs, trade facilitation index of China and Mongolia-China trade cost were considered for all models. The results indicate that the cultural distance between Mongolia and China and the population of Mongolia are stationary at level. The coefficient of GDP (income) of both countries is positive and statistically significant with exports. Moreover, trade facilitation has significant positive impact on exports of both countries. These findings reveal that efforts in improving excellence of border administration, arrangements would make a positive contribution in trade of goods. Another major influencing factor is tariffs, which was negatively significant for exports, suggesting that if China imposes 1% tariffs on Mongolian exports, it will result in 24% decrease of Mongolian exports. The results of regression coefficients show that there is long run association between variables. This indicates that China adopted a more restrictive trade policy on the flow of goods from Mongolia with an increase population of China. The study suggests a free trade agreement and relaxation of export/import procedures for Mongolia in order to increase the GDP of Mongolia.

Keywords: gravity model; China-Mongolia trade; tariffs; GDP; PCA (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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