The Determinants of China’s Services Trade

Abstract

This paper examines the determinants of services trade in China with a panel of 42 trading partners during the period of 2000–2014. Using augmented Gravity model, the estimated results from Poisson Pseudo Maximum Likelihood (PPML) show that the sectoral output of China and its trading partners, sharing of common borders, fixed telephone subscription in China, exchange rate, perception of lower corruption in partner countries contribute positively to services trade between China and its trading partners. On the contrary but not surprisingly, trade restrictiveness and distance between capitals of China and its trading partners are negatively associated with services trade between China and its counterparts. Greater availability and adoption of information and communication technology in partner countries, proxied by fixed telephone subscription, appear to have a negative (positive) effect on China’s services exports (imports). On the policy front, this paper suggests that the Chinese government should devise policies to deal with non-tariff trade restrictions and improve the country’s telecommunication infrastructure to address the services trade gaps with its trading partners.