Assessment of the bilateral trade potential between China and the European Union

Abstract

This study uses an extended gravity model to analyze the determinants of bilateral trade flows between China and the EU from 2002 to 2022. The results show that trade flows between China and the EU are mainly affected by economic size, adjusted geographical distance, trade dependence and real effective exchange rate. Specifically, both China's per capital GDP and the EU countries' per capital GDP have a significant positive impact on bilateral trade flows, highlighting the role of economic growth in promoting trade volume. The distance variable, which combines geographical distance and an adjusted distance variable based on crude oil prices, has a significant negative impact on trade flows, reflecting the constraints of transportation costs and geographical distance on international trade.