Cross-Sectoral Gravity for Bilateral Trade: Greek–Chinese Trade Prospects

Abstract

The traditional discouraging role of geographical distance on international trade is widely reported in the relevant literature. China is a major trading partner of the European Union and, at the same time, a distant market for European and, consequently, Greek products. The purpose of the present paper is first to capture the differentiated discouraging effect of distance on international trade of different product groups, focusing on the Greek export and Chinese import sectors during the 1995-2018 period. Second, to incor-porate this product–differentiated effect of distance into a cross-sectoral gravity analysis of Greek merchandise exports towards the Chinese domestic market. The two-step methodological approach is based on the application of the augmented gravity equation and the Poisson Pseudo Maximum Likelihood (PPML) estimator. The hypothesis of the differentiated effect of geographical distance on trade of different products is confirmed in the present analysis. The empirical findings also highlight some of the factors lying behind Greek – Chinese bilateral trade and provide policy implications in the light of the current pandemic crisis. The Greek economy should focus on strengthening sectors related to the optimal utilization of high value-added natural resources and specific human capital intensive sectors. Policy makers should take into account that production verticalization strat-egies, such as in the agri-food processing industry, could certainly facilitate safe transport of products to distant markets while at the same time increasing their added value. © 2022, Economic Laboratory for Transition Research. All rights reserved.