Do country sizes matter? What motivates China’s trade decision in Southern Africa?
| Date | 06 February 2017 |
| DOI | https://doi.org/10.1108/JCEFTS-07-2016-0018 |
| Published date | 06 February 2017 |
| Pages | 44-60 |
| Author | Emmanuel Igbinoba |
| Subject Matter | Economics,International economics |
Do country sizes matter? What
motivates China’s trade decision
in Southern Africa?
Emmanuel Igbinoba
Centre for Chinese Studies, Stellenbosch University, Matieland, South Africa
Abstract
Purpose –This paper aims to test the political-economy hypothesis that country sizes are related with
constraints associated with Chinese trade.
Design/methodology/approach –This study applies a generalized linear mixed approach on panel data
of Southern African (henceforth SADC) economies from 2001 to 2014 to observe common Chinese trade
patterns among SADC countries.
Findings –Empirical results support the hypothesis that structural differences exist and smaller SADC
countries are disadvantaged in their trade relations with China.
Research limitations/implications –This paper is exploratory by nature. Its scope and the depth of
analysis is constrained by data availability.
Originality/value –The manuscript has been approved by the author and has never been published, or
has been considered for publication elsewhere.
Keywords SADC, Chinese trade, Country size, Finite mixture model, Southern Africa
Paper type Research paper
1. Introduction
Differences exist among sizes of countries. The size of a country can be measured in terms of
its population, land mass or gross national product[1]. Extant studies on the relationship
between country size and economic performance have elicited mixed responses. A school of
thought argues that larger countries tend to be more successful because of “scale effects”,
whereas another school of thought theorizes that smaller countries tend to be better
structured organizationally, and a third school of thought emphasizes trade-offs between
country sizes and benet cost. Helpman and Krugman (1985) cites improved integration of
factor levels of production, greater productivity derived from specialization and a higher
ability to inculcate technological ows as advantages of scale effects. Barro and
Sala-i-Martin (1995) listed increased technological spill-overs as a by-product of the scale
effect and concluded that larger economies tend to grow faster, whereas Jones (1999) applied
the endogenous growth model and noted that economic size has an impact on the growth rate
in the long run, as larger economies are able to support more research which leads to higher
productivity rate. Krugman (1991) expatiated on size effects using an economic geography
approach and posited that larger economies experience an increasing return to scale, which
is higher than that of smaller economies. Alesina and Spolare (2003) discussed the
advantages of a larger population size as increased productivity arising from specialization,
lower cost per capita of public goods and a higher capability to redistribute wealth in the
economy. They, however, noted political and economic cost arising from heterogeneity in
culture and languages as trade-offs relative to the advantages of size. If scale effects only
JEL classication – F14, F21, F23
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1754-4408.htm
JCEFTS
10,1
44
Journalof Chinese Economic and
ForeignTrade Studies
Vol.10 No. 1, 2017
pp.44-60
©Emerald Publishing Limited
1754-4408
DOI 10.1108/JCEFTS-07-2016-0018
derive benets, then countries around the world would be congured as a single entity.
Myrdal (1968) argued that larger states require strong leadership which leads to
authoritarianism or oligarchies as a form of government. They also stated that larger
economies tend to place greater emphasis on internal stabilization. According to Easterly
and Levine (1997), as nations expand in size, the rise in administrative and bureaucratic cost
might outweigh the advantages of size while other drawbacks include heterogeneity of
citizens (nationals). They further stated that heterogeneity among African nations, caused
by articial borders created by colonial masters, is a signicant factor in market failures and
economic collapse in Africa, as the borders transverse tribal lines in an inefcient manner.
Are smaller countries affected by their smallness? Easterly and Levine (1997) provided
evidence that smaller countries require relatively less goods, and this creates higher cost per
unit which act as a disincentive. Alesina and Spolare (2003) further listed disadvantages of a
smaller country size to include fewer resource endowment and weaker inter-sector linkages
and listed benets to include reduced transport cost, as it is easier to transport goods at a
relatively lower cost. Alesina et al. (2005), furthermore, observed that smaller economies tend
to be more susceptible to external economic conditions and are thus more likely to apply
competitive trade strategies geared towards boosting exports, as the small domestic market
does not provide option for loss of market share. Rose’s (2000) study, additionally, proved
that signicant relationship exists between a country size and economic growth on a global
level. He further stated that smaller countries tend to have higher per capita GDP[2] borne
largely from specialization, and smaller countries tend to be more open to international trade
than bigger countries. Olson (1982), again, pointed out that smaller economies tend to be
more homogenous, and thus have a greater incentive and capacity to create wealth. Also,
Feldman (2006) observed that among the Eurozone economies, countries with larger
economies tend to have a higher degree of unemployment.
Research on Chinese trade and investment in Africa has been growing over the past years,
and a few of these papers have explored the locational choices of Chinese trade using
different sources of data and empirical techniques. Buckley et al. (2007) and Kolstad and Wiig
(2012) observed that the partner country’s income level determines Chinese trade and
investment decisions. Amighini et al. (2011) by analysing Chinese trade and investment
noted that Chinese economic relations tend to be sector-specic. Li and Liang (2012) further
disclosed that Chinese trade and investments decisions are drawn to politically risky
economies, usually because of harmonious political relations between both economies rather
than because of risk preference. Duanmu (2012) observed that Chinese trade is attracted to
countries with abundant endowment of natural resources. Results are, however, inconclusive
as to whether Chinese diaspora population in a partner country is a draw or an attraction for
trade decisions. Ramasamy et al. (2012) and Song (2011) observed varying responses from
survey data analysed. The objective of this paper is to analyse the locational determinants of
Chinese trade. This study attempts to evaluate Chinese trade decisions from a country size
perspective, using population as a proxy for country size (Sachs and Warner, 1995;Cicone
and Alcala, 2004). The motivation for looking at scale effect is that theoretically, they
provide an important mechanism linking growth to trade. This paper analyses the trade
internationalization location decisions of Chinese trade in Southern African Development
Community (SADC) from 2001 to 2014, using a generalized mixed model. Market-seeking
determinants are rst evaluated on Chinese trade data to observe their impact on SADC
economy, and then we apply the mixture model to sort country clusters based on their
posterior probability. This study is exploratory by nature. Its scope and the depth of the
analysis are constrained by data limitations of China’s trade ows. The paper is organized as
follows. Sections 2 and 3 provide the theoretical model and descriptive and empirical
45
China’s trade
decision in
Southern
Africa
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