Better Friends, Better Trade?

Wenqi Li () and Bao.H. Nguyen ()
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Wenqi Li: School of Economics and Business Administration, Chongqing University
Bao.H. Nguyen: Tasmanian School of Business & Economics, University of Tasmania, https://discover.utas.edu.au/B.Nguyen

No 2026-02, Working Papers from University of Tasmania, Tasmanian School of Business and Economics

Abstract: Using a unique dataset on political relations between China and its key trading partners and a nonlinear model, we explore how improvements in bilateral political relationships influence trade outcomes under varying economic states. Our findings reveal that while stronger political ties (“better friends†) generally improve trade flows, this effect is not universal. During periods of weak domestic demand, bet- ter political relations do not significantly enhance trade performance. The results also exhibit heterogeneity across countries, indicating that the impact of political relations on trade flows differs depending on the specific economic condition and political context.

Keywords: China; political relations; non-linear models; trade flows (search for similar items in EconPapers)
JEL-codes: C32 E32 F14 F50 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:tas:wpaper:65547630

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