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Economic diplomacy: The “one–China policy” effect on trade

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  • Didier, Laurent

Abstract

Chinese foreign policy is mainly characterized by the Beijing consensus and the one-China principle in international relations. More precisely, the situation faced by Taiwan is a “core interest” in China's economic diplomacy strategy. We investigate whether the “one-China policy” (OCP) has had visible effects on bilateral trade flows. In other words, does the compliance of diplomatic commitments with China undermine Taiwanese trade and enhance China's trade position? Using a structural gravity model based on worldwide panel data for the period 1948–2012, we approximate the OCP through two dummy variables: the vote by countries of the UN resolution about China's recognition in 1971 and the existence of diplomatic ties with China. The first component of the OCP drastically increased on average in trade flows with China regardless of the vote of trading partners concerning this UN resolution as well as that for Taiwan. On average, results suggest that diplomatic relations with China improve bilateral trade flows for China, but a trade-deteriorating effect appears for Taiwan with certain ex-colonies. We also find that the effects of these economic diplomacy components confirm previous results reported for the period studied.

Suggested Citation

  • Didier, Laurent, 2018. "Economic diplomacy: The “one–China policy” effect on trade," China Economic Review, Elsevier, vol. 48(C), pages 223-243.
    • Handle: RePEc:eee:chieco:v:48:y:2018:i:c:p:223-243
    DOI: 10.1016/j.chieco.2016.11.003
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    3. Guillon, Marlène & Mathonnat, Jacky, 2020. "What can we learn on Chinese aid allocation motivations from available data? A sectorial analysis of Chinese aid to African countries," China Economic Review, Elsevier, vol. 60(C).

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    More about this item

    Keywords

    Economic diplomacy; Trade; China; Taiwan; Gravity;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other

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