Does trade still follow the “flag”? Evidence from the partnership and bilateral trade in China

Abstract

Partnership is a typical “Flag” of China’s foreign relations, playing a significant role in promoting bilateral trade. This study examines the impact and mechanism of China’s partnerships on trade with empirical evidence, revealing that establishing a partnership increases bilateral trade by 25%; each level-up of the partnership will lead to a 6.8% increase in bilateral trade, with a dynamic impact lasting about five years. Partnership building mainly impacts bilateral trade through political interaction, bilateral investment, and cultural exchange between two countries, with cultural exchange playing a dominant role in the mechanism. Strengthening partnerships with Asia-Pacific, Latin America, African countries, low-income, and low trade size countries can create more potent bilateral trade effects. Furthermore, higher levels of partnership have an exemplary effect, bringing a positive spatial spillover effect on trade. This study affirms the significant role of partnership in foreign relations and trade, providing valuable insights to reduce trade risk and achieve high-quality development.