For better or worse, in sickness and in health: Australia-China political relations and trade
August 29 2022
This paper quantifies the effects of shocks in bilateral political relations on Australia’s merchandise goods exports to China between 2001 and 2020. Using a vector autoregression framework, our estimates suggest that short-term fluctuations in political relations have no long-run effects on Australia’s aggregate export growth to China over this period, nor in any of three sub-periods analysed. A disaggregated analysis of 19 HS2 sectors reveals heterogenous short-run effects across sectors and time periods, with numerous sectors indicating the seemingly perverse finding that an increase in political cooperation/conflict is associated with a decrease/increase in export growth, with a lag of one to four months. We propose two hypotheses that are consistent with these findings, ‘doubling down’ and ‘dropping the ball’, contributing new understanding to the political relations-trade nexus in the context of a bilateral relationship that will likely be characterised by both cooperation and conflict in the decades ahead.
Read the paper online here.
Note: This paper was published in the China Economic Journal, DOI: 10.1080/17538963.2022.2117180
Authors: Jane Golley, Professor, Crawford School of Public Policy, Australian National University; Vishesh Agarwal, Economist, The World Bank; James Laurenceson, Director, Australia-China Relations Institute, University of Technology Sydney; and Tunye Qiu, Student, Crawford School of Public Policy, Australian National University.