Abstract
The Northeast region has struggled to restructure and modernize its economy during China’s transformation into a global power, missing the opportunity to benefit from foreign trade and investment. This paper explores the trade patterns of the region’s three provinces vis-à-vis their main trading partners over the period 1992-2018. In particular, we quantify the barriers to trade employing a gravity model specification and trace changes across time and regions. Furthermore, we use a stochastic frontier approach to calculate a measure of the trade potential that serves as a benchmark in assessing the trade performance of Northeast China’s provinces. The results show that the region exhibits high trade costs that amount to ad-valorem tariffs ranging between 75% and 100%. The analysis also indicates that the region’s trade performance is only 40% to 55% of its potential level. The relatively high levels of inefficiency extend even to trade with the rest of China and have increased over time.
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