1036082

research-article20212021
SGOXXX10.1177/21582440211036082SAGE OpenRahman et al.

Original Research

SAGE Open

Infrastructure and Trade: An Empirical

July-September 2021: 1­–16
© The Author(s) 2021
DOI: 10.1177/21582440211036082
https://doi.org/10.1177/21582440211036082

Study Based on China and Selected journals.sagepub.com/home/sgo

Asian Economies

Imran Ur Rahman1 , Mohsin Shafi1, Liu Junrong1,

Enitilina Tatiani M.K. Fetuu2, Shah Fahad1,
and Buddhi Prasad Sharma1

Abstract
We empirically determine the role of different forms of infrastructure on a country’s trade. We use an augmented gravity
model that incorporates infrastructure in the estimation of merchandise trade flows. We take panel data, including China and
21 selected Asian economies, from 1999 to 2018. We find that the panel ordinary least squares (OLS) and poisson pseudo
maximum likelihood (PPML) model estimations prove to be significant. Proxies for Transport Infrastructure including roads,
railways, and sea transport, and Proxies for information and communication technology (ICT) infrastructure consisting of
mobile, electricity, and internet connections show a strong and positive impact on trade while air transport and landline
phone connection have an unexpected negative effect on trade. The positive estimates for quality of infrastructure signify that
high standards of Transport and ICT infrastructures lead to increased trade flows of the exporting and importing countries.
Results also show that cultural similarity leads to increased trade flows between China and its trading partners in Asia.

Keywords
China, gravity model, international trade, information and communication technology, transport infrastructure, cultural
similarity

Introduction (Chakraborty & Nandi, 2011). Existing infrastructure in the

developing nations presents a far worse scenario for the
As nations focus on sustainable development and globaliza- nations as the infrastructure is eroding and depleting day by
tion goals in the modern era, international trade plays a criti- day, causing huge investments in the renovations and
cal role. International trade provides a platform for nations to maintenance of the projects (Orbital Insight, 2019). Countries
cooperate and exchange goods and services according to like Pakistan, Sri Lanka, India, Thailand, and so on have to
their requirements (Bankole et al., 2015b). The importance spend most of the budget and government income on main-
of infrastructure on affecting diverse outcomes on the econ- taining and repairing the existing infrastructure projects.
omy, including trade and commerce, cannot be neglected, These investments are proving to be fruitful for the nations
and their impact on the exports and imports of the country (Seethepalli et al., 2008). They can be further enhanced
cannot be denied. Infrastructure is considered the backbone through new and innovative projects with more area
of a country’s economy as it enables efficient use of the coverage in the countries. The low quality of infrastructure
available resources through enhancing mobility and accessi- creates a gap and increases vulnerability toward high cost
bility (The World Bank, 2020b; World Trade Organization, and time inefficiencies (Bartle, 2017; I. U. Rahman et al.,
2018). It ensures time and cost-efficiency. For the same rea- 2020). These factors halt and break the trends of increased
son, trade within the country is also enhanced and developed.
Infrastructure within a country can foster trade is the main 1
Center for Trans-Himalaya Studies, Leshan Normal University, P.R. China
direct expected outcome. It is also obvious that enhancement 2
University of International Business and Economics, Beijing, P.R. China
in trade, exports, and imports is often assumed to lead to
more employment, higher wages, and similar positive results Corresponding Author:
Mohsin Shafi, Center for Trans-Himalaya Studies, Leshan Normal
(Donaldson, 2018). University, 778 Binhe Road, Leshan City 614000, Sichuan Province, P.R.
Lack of infrastructure diminishes the growth and devel- China.
opment trends of the developing and underdeveloped nations Email: [email protected]

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2 SAGE Open

growth of the nations and countries and take a long time to evaluating all subcategories to determine trade. Transport
recover from such situations. This condition is mostly true and ICT infrastructure are crucial for trade. A lack of atten-
for the developing nations that suffer to a greater extent due tion to transport and ICT infrastructure may lead to ineffi-
to lacking infrastructure systems in the boundaries of the ciencies and a failure to achieve trade goals. This research
nations. attempts to analyze all possible outcomes related to trade that
Current studies in the literature have focused on the may result from different infrastructures and provide further
importance of physical infrastructure within a country and proof in the literature. In addition, the current article also
have shown that new and improved infrastructures lead attempts to partially fill the literature gap by examining the
toward the progress of trade, commerce, industry, economic economic, cultural, and geographical factors’ impact on trade
activities, cooperation, and integration (Akpan, 2014; Baniya of China and its trading partners over the period 1999–2018.
et al., 2020; Coşar & Demir, 2016; Duranton et al., 2013; Moreover, the PPML model proposed by Silva and Tenreyro
Hoang et al., 2020; Zhai, 2018). Transport infrastructure based on the Gravity Model is also adopted for the research
plays a distinct part in the economy, especially in the mobil- (Santos Silva & Tenreyro, 2006). Furthermore, the article
ity and transportation of tradable goods and services. Road also provides implications for policymakers to enhance
and highways create an easy means of bridging the gap future trading activities and economic cooperation.
between producers and manufacturers, suppliers, consumers, The article is divided into five main sections. Following
exporters, and importers. In terms of productions in a coun- the introduction, the second section covers the relevant lit-
try whose economy is mainly based on export goods and erature works and articles. The third section provides details
items, the country must have a good physical infrastructure of the research methodology based on the theoretical and
and means to provide access to the raw material and smooth empirical framework. The next section explains the main
flow of final products, that is, exports, to the destination. results and outcomes based on diagnostic tests and regres-
Regional infrastructure is possibly a good measure of the sion analysis. The final section highlights the key findings
increase in productions and economic activities within the and implication of the research.
regions and leads to better outcomes and socioeconomic
development of the areas and thus the country (Duranton,
2015). The more the coverage of infrastructure within the
Literature Review
regions, the higher the chances of the region accelerating its The study of the relationship between trade and infrastruc-
growth through access and utilization of the main social and ture is not a new phenomenon. Past and current studies
economic assets and resources. have focused on determining the role and importance of
As an evolving economic bloc in recent years, Asia has infrastructure development on a country’s economic indi-
seen a proliferation of regional integration and collaboration cators, including trade (Bougheas et al., 1999; Donaubauer,
initiatives. On one hand, Asia’s trade volume has been rap- Glas, et al., 2016; Francois & Manchin, 2013). Different
idly increasing, while on the other hand, the trend and char- pieces of literature have focused on the relationship
acteristics of infrastructure facilities have been rapidly between trade and infrastructure in both qualitative and
evolving with the likes of mega projects of China—Belt and quantitative aspects. The literature widely illustrates that it
Road Initiative (BRI), China Pakistan economic corridor is still a problem to determine the precise effect of infra-
(CPEC), and so on. Different spatial and socioeconomic fea- structure on trade. Any considerations, such as relevant
tures distinguish segments of the communication network, geographical characteristics, interrelationships between
resulting in a heterogeneous infrastructure network. various types of infrastructure and use of infrastructure
Asia is a key economic area for building a network of resources, may be due to the broad variety of estimates
infrastructure connectivity, and China’s export-based found in the literature.
economy and infrastructure development policies provide In addition, there are problems regarding infrastructure
a strong framework for analysis. Like other nations glob- forms. According to Bouet et al. (2008), measuring the
ally, most Asian nations depend on China for trade and impact of infrastructure on trade is complicated due to the
commerce. China’s trading partners include both high- and interactive nature of different types of infrastructure. The
low-income nations with different socioeconomic condi- authors further reiterated that any greater influence of tele-
tions and infrastructure networks, which provides new phone access, on the other hand, is dependent on the support
dimensions in terms of the relationship between trade and of the road system and vice versa. Therefore, it is necessary
infrastructure. Therefore, this article aims to address the to include all the major types of infrastructure in determining
relationship between trade and different types of transport the true impact of infrastructure on trade.
and information and communication technology (ICT) Trade and infrastructure are important research areas,
infrastructure using the case of China and selected trading with several studies documenting empirical evidence in these
partners in Asia. aspects. We present the literature studies in two ways: first,
According to the literature, historically, transportation the relationship between trade and transportation infrastruc-
and ICT infrastructure were analyzed separately or without ture, and subsequently, the link between ICT infrastructure
Rahman et al. 3

and trade. We provide an extensive discussion of empirical may enhance and improve the transport infrastructure. In
literature in transportation and ICT infrastructure in this part. addition, the location of a country plays an important role in
this regards, and the access to seaports and sea routes and
distance of the seaports from the main industries determines
Transport Infrastructure
the trade and costs related to it.
The significance of infrastructure within a country to boost Although previous studies have highlighted the impor-
trade and economic development cannot be overlooked tance of different transport infrastructure in trade, yet the
(Lakshmanan, 2011). Infrastructure, including both commu- study on combined effects of each component on trade is
nication and transport infrastructures, is crucial for the prog- rare. In addition, the evidence on the relationship between air
ress of a nation, growth of the economy, trade and commercial transport and trade is scarce. Considering these aspects, in
relations with its partners (Bougheas et al., 1999). Good and this article, we add these factors to the model estimation.
quality infrastructure promotes and assists the other eco-
nomic indicators (Clark et al., 2004). The flow of goods, Information, Communication, and
access to services, and movement of resources across all
industries and sectors, not only within the economy but also
Telecommunication Infrastructure
in terms of global markets and international cooperation, are Infrastructure related to ICT is an important aspect in terms
key factors in the economy. As obvious as it is, it is believed of international trade. Landline telephone connections, inter-
that development and advances in infrastructure improve net, electricity, and cell phone subscriptions can impact the
economic progress and substantially affect nations’ living economy and trade through decimation and flow of informa-
standards and social welfare. tion among all the sectors. Ahmad et al. (2011) measured
Earlier studies mainly concentrated on determining the and analyzed the extent of the effect of ICT infrastructure.
relationship between trade and infrastructure based on qual- He established that the use of ICT infrastructure, including
ity and costs. Literature studies have shown a positive and Telephones, cellphones, and the internet, has a positive
significant relationship between trade and transport infra- impact on the trade of Malaysia with the partners of trade.
structure quality (Baniya et al., 2020; Blonigen & Wilson, According to Levchenko (2007) and Méon and Sekkat
2008; Clark et al., 2004; Shepherd & Wilson, 2007). (2008), halts in the decimation of information throughout
According to these studies, improved efficiency of seaports the economic sectors and institutions, delays in delivery of
will lead to an increase of approximately 25% in the trade of shipments, failure in timely transport and transfer of goods
the country. These studies were limited to the quality of sea and services, and deficiencies in communication are few of
transport infrastructure, while other modes of transportation the obstacles created due to poor infrastructure. Lackings in
were not included. Based on the importance of port effi- ICT infrastructures can have undesirable effects on the
ciency in the case of Latin American nations, Sánchez et al. economies.
(2003) showed that port efficiency measures have significant Bankole et al. (2015a) used the costs on telecommunica-
impacts in reducing transportation costs of trade. In terms of tions in an augmented gravity model and showed a negative
infrastructure, transportation of tradable goods and services and significant impact of the costs on telecommunications on
through seaports and sea routes is one of the significant trade. It can also be assessed that telecommunication and
sources of transport infrastructure. The effect of sea transpor- costs on telecommunications are also necessary while con-
tation is highly significant and has been an important deter- sidering a nation’s infrastructure and its impact on the trade
minant of trade between nations in history as well as the with its partner nations (Zhen-Wei Qiang et al., 2004). In this
modern era. Arvis et al. (2010) supported the arguments put regard, Fink et al. (2005) showed that costs incurred on tele-
forth by Limao and Venables and explained that landlocked phone calls have affiliation with the trade flows of a country.
countries have relatively higher transportation costs than The study showed a negative relationship between both and
countries with access to seaports and sea routes. presented that the cost of telephone calls led to a decline in
In contrast to better quality infrastructure, the characteris- the trade, especially in the services. The same effect was also
tics and outcomes of poor quality infrastructure for the soci- supported and presented by other scholars (Nicoletti et al.,
ety are of serious concerns for the countries. Countries face a 2003; Li & Wilson, 2009). Although some of the ICT infra-
decline in output and income caused by fewer infrastructure structures have been studied and presented in previous
facilities and structures (Nordås & Piermartini, 2006). Lack research studies, there is still a need to study and estimate the
of infrastructure facilities can harm the progress of the eco- overall impact of the main sources of infrastructure, includ-
nomic structure of the nations. All other setups in the econ- ing all transport and communication infrastructure compo-
omy are affected due to the unavailability or poor performance nents. Apart from the three main ICT components (internet,
of infrastructure facilities. Moreover, focusing on the infra- telephone, and cellphone), electricity is also believed to play
structure related to the Belt and Road Initiative (BRI) a key role in the production process. This article will take
projects, Soyres et al. (2019) suggested that minimizing into account the electricity component as part of the ICT
transportation costs and increasing trade flows in countries infrastructure.
4 SAGE Open

Regional differences also exist in terms of infrastructure landlocked countries, financial crisis and countries bordering
across the globe. In the case of Asia, most of the nations are China are also included as control variables for robust out-
developing, and some countries lack proper transport and comes. The article mostly follows the augmented model
communication infrastructure compared with other nations similar to the one presented by Limao (2001) and uses the
of the world. Estache et al. (2006) and Estache and PPML model for estimation purpose. The addition of new
Goicoechea (2011) showed the level of the transport and indicators in modeling and use of PPML will enhance the
communication infrastructure for Asia and Central Asia and outcomes of the model and provide robust estimates on the
revealed that the main transport infrastructure, including rail- impact of new infrastructures on trade in terms of China and
ways and freight transport for the Central Asian nations, was its trade partners in Asia.
very less and the quality was poor. Donaldson (2018) pointed
out the importance of railway networks based on archival
data on colonial India. Railway networks are also a major Research Methodology
part of the transport infrastructure in terms of developing The design and setup of the article were in accordance with
Asian nations, but the condition of the railways system is the theoretical and empirical approach appropriate for the
outdated and of low standards. Countries like China, Japan, model estimation. The data of 12 estimators for 21 selected
Singapore, South Korea, and Malaysia have maintained high economies of Asia, including China, for a sample period of
standards in terms of transport and ICT infrastructure and 20 years (1999–2018) was gathered and organized to approx-
achieving high levels of trade, but other nations require fol- imate the equation. A total of 400 observations were taken
lowing the same patterns. Therefore, it is essential to focus for sampling purposes.
on the aspect of different types of infrastructure and study the We use the gravity model of trade as the base for this
link of infrastructure in enhancing trade of the countries. research (Bergstrand, 1985; Isard, 1954). The gravity model
In terms of analysis and measurement of bilateral trade explains a positive relationship between the GDPs of the
flows, different approaches have been used in the past pieces trading countries and exports between them. It assumes that
of literature (Athukorala, 2011; Gaulier et al., 2007), while the exports between different nations will be high if their
some have focused on the use of the Gravity model (Baniya respected GDPs are high and vice versa. Contrary to that, the
et al., 2020; Chen, 2016; Hoang et al., 2020; Truong et al., distance between the trading nations has a negative relation-
2019). The key rationale applied in early econometric mod- ship with the trade and exports of the nations. The greater the
els for modeling trade flows is the gravity approach. distance, the lower will be the trade and vice versa. Following
Researchers centered on the specification of the gravity the gravity model, this article assumes an augmented form of
model, which is analogous to Newton’s Law of Gravity the model with the inclusion of new variables and dummy
(Anderson & Van Wincoop, 2003). Walter Isard (1954) first variables to estimate the relationship of the dependent vari-
introduced the Gravity model in the field of economics. The able (trade flows) and independent variables. In its basic
model estimates bilateral trade flows based on economic form, the gravity model is specified as follows:
sizes and distances between the two economies in its conven-
tional approach. But a more better and recent application of  GDPi α . GDPjαj 
Gravity was proposed by Santos Silva and Tenreyro (2006) exportij = K   eij , (1)
in the form of PPML approach, which considers the issues of  Distijβ 
 
non-zero error and correlation in the model (Frankel, 1997).
Based on the past literature and the importance of the Gravity where the subscripts i and j represent the origin and destina-
Model, this research will use a similar method based on the tion countries, respectively; exportij is the value exports
PPML approach for the estimation purpose. (Trade flows) from i to j; GDPi is the gross domestic product
The impact of major integrated kinds of infrastructure on of the exporting nation i; GDPj is the gross domestic product
trade flow indicators, such as exports, is not considered in of the importing nation j, and finally Distij is the land dis-
the literature studies. Several scholars, in particular, were tance between country i and country j.
unable to include key Transports and ICT infrastructures in In the linear form, the general equation is represented as
assessing trade flow metrics in Asian economies (quality
infrastructure, trade, etc.). This article has not only focused exportij = α 0 + β1GDPi + β2GDPj + β3 Distij + εij . (2)
on the main infrastructure components, including railways,
roads, waterways, and air transport but added telecommuni- If aggregate trade is estimated, theoretical bases and gravity
cation infrastructure in the model inclusive of mobile phone model literature demonstrate intersectional effects and
connections, landline phone connections, internet services, endogeneity bias of trade and its components. Therefore, we
and electricity infrastructure. The inclusions of these vari- consider bilateral trade flows for the trading partners sepa-
ables provide new dimensions to the study and create new rately as exporting and importing nations to mitigate this
opportunities and evidence on determining the trade in the issue. Moreover, we use panel data analysis to minimize the
case of developing nations. Dummy variables for cultural bias caused by unobserved heterogeneity in the model for
similarities based on the study of Quer et al. (2017), calculations.
Rahman et al. 5

Following the literature (Anderson, 2011; Duranton et al., countries i and j; mobij, denotes number of mobile phone
2013), the gravity model in an extended and modified form users in countries i and j; and elecij, denotes number house-
will be put in the article to analyze the infrastructure and holds with access to electricity in countries i and j.
trade flows magnitudes of the coefficients of the variables Moreover, the vector Di contains all of the dummy vari-
for countries of Asia. However, the OLS model proposed by ables in our model. The variable brd indicates countries that
Anderson and Van Wincoop (2003) leads to heteroscedastic- border China and has a value of 0 if it shares a border with
ity bias due to the issue of zero trade. To tackle this issue, China and 1 otherwise. llck is a dummy for a landlocked
Santos Silva and Tenreyro (2006) proposed a new PPML nation that has a value of 1 if it has no seaport and 0 other-
model for the estimation of Gravity model equations. They wise. clt represents the dummy for a country’s cultural simi-
showed that the PPML model provides consistent results larity with China, which is 0 if there is no cultural similarity
when used in Gravity models of trade. Keeping in view the and 1 otherwise. To control for differences in income levels
theoretical and empirical studies, we apply the PPML model between nations, the variable inc is added as a dummy with a
in our estimations and present our model as follows: value of 0 if the country is low income and 1 otherwise. qual
is the dummy for the country’s infrastructure quality, which
expij = α 0 + β1 gdpi + β2 gdpij + β3distij + β4 popij is 1 if the scale of infrastructure on the logistics performance
+β5invij + β6 fdiij + β7 exrtij + γ i infij (3) index (LPI) ranking is greater than or equal to 3 and 0 other-
wise. The dummy variable fcr is also included in the model
+δi ictij + ∂ i Di + µi ,
as a proxy to examine the effects of infrastructure on trade
where, expijt = country i (China) exports to country j in year before and after the financial crisis, with a value of 1 before
t, gdpit = exporting country’s GDP in year t, gdpjt = import- 2008 and a value of 0 after 2008.
ing country’s GDP in year t, distij = economies i and j’s
capitals cities (Distance in km between China and Selected
Asian Economies), inf ij = vector representing transport
Data Illustration
infrastructure variables, ictij = vector representing informa- We use secondary data for the estimation of our model. All
tion and telecommunication Infrastructure variables, Di = the data were collected from online resources, including rel-
vector representing dummy variables, popij = population of evant websites of institutions and organizations of the sam-
the country, invij = value of Investment in Transport Sector, ple countries. The data for dummy variables were collected
fdiij = foreign direct investment, exerij = Real Exchange and estimated from the relevant websites. The LPI index of
rate, µi = error term. The vector of transport infrastructure the World Bank was collected from the website and added to
inf ij has four variables: roadij, which represents the length of the model (The World Bank, 2018). Variable of distance was
roads in countries i and j; railij, which indicates the length of added as the length between the capitals of the countries,
railway tracks in countries i and j; watij, which represents the which past researchers also used.
quantity of sea transport and waterway traffic in countries i The main sources of the data included the websites of the
and j; and airij, which represents the level of air traffic in World Bank, the Statistical Bureau of China, the Asian
terms of trade in countries i and j. Similarly, the vector for Development Bank, and the APEC database. The data of dis-
information and telecommunication infrastructure ictij tance between capital cities (China and its trading partners in
represents four factors: intij, denotes the number of house- Asia) were collected from an online website, and data on cul-
holds with internet connections in countries i and j; telij, ture similarity were derived based on information at World
denotes the number of telephone/Landline connections in Atlas. Details of the data sources are as follows (Table 1):

Table 1. List of Variables and Data Sources.

Variable Abbreviation Source

Value of total exports expij WDI
Gross domestic product (country i and country j) gdpi, gdpj WDI
Distance between capital cities of trading partners distij timeanddate.com
Length of roads roadij APEC
Length of railways railij WDI
Sea traffic watij WDI
Air traffic airij WDI
Number of telephone/landline connections telij WDI
Number mobile phone users mobij ADB
Number of households with internet connections intij WDI
Households with access to electricity elecij WDI
(continued)
6 SAGE Open

Table 1. (continued)
Variable Abbreviation Source
Investment in transport Sector invij WDI
Population popij WDI and NBSC
Foreign direct investment fdiij WDI and NBSC
Real foreign exchange rate exchij WDI and NBSC
Culture similarity with China clt World Atlas website

Source. APEC (2020); Asian Development Bank (2018, 2020); Boland (2020); NBS China (2020); Timeanddate.com (2020); The World Bank (2020a).
Note. WDI = World Development Indicators; APEC = Asia Pacific Economic Cooperation; NBSC = National Bureau of Statistics China; ADB = Asian
Development Bank.

Apart from the above variables, other dummy variables main variables, and (b) six dummy variables. The dummy
are not included in this table. The Authors develop the variables will also be used as control variables along with
dummy variables, including nations bordering with China, population, real exchange rate and investment, and foreign
countries with seaports, financial crisis, and year dummies. direct investment (FDI). The sample size consisted of an
The names, along with the location of the selected countries average of 800 observations. The average value for all the
trading with China, are presented in the appendix. The coun- variables provides a clear summary and idea about the
tries are chosen based on data availability as well as consid- changes and weightage of the variables.
eration of socioeconomic and geopolitical factors in relation The mean value of exports was USD 7956190.9 for China,
to China. and its trading partners, representing the trade flows in the
model. For the given period, the mean values for the annual
GDPs of China and trading partners are USD 4.164 trillion
Result Estimation and USD 2.309 trillion that show the GDP of China is much
The results of the article matched the expected outcomes. To higher as compared with the trading partners. One of the
check the presence of a connection between the regressors of main reasons for this can be the population of China and
the estimation, the OLS Fixed and Random effects and higher levels of growth that lead to an increase in all the
PPML models were applied. Diagnostic tests for the panel other factors of the economy. The average distance between
data, including the Hasuman test, panel unit root test, and the capitals of the trading partners with China is 2259.05 km
panel co-integration test, were undertaken to avoid spurious with a minimum distance of 594 km. Some Asian nations are
regression and irrelevant inferences. Given the considerable located at a close distance from China, and some are neigh-
rise in studies on panel unit root and the co-integration grav- boring countries, including Pakistan, Mongolia, India, and
ity model, variables were mostly disregarded (Afolabi et al., Nepal. The impact of distance of different nations on their
2016). Afolabi et al. (2016) suggested different methods can trade with China will provide basic analysis in terms of the
be adopted to check whether variables are nonstationary and Gravity model.
the variables are co-integrated. Thus, the Fisher-Type unit The variables for transport and communication infrastruc-
root test was conducted to check if the variables are station- ture are also summarized. In terms of transport infrastruc-
ary or not, while the Pedroni co-integration test was adopted ture, the average length of the roads for the sample is
to estimate the long-run association between the variables. 166066.07 km with a minimum value of 118.58 km and
Multicollinearity, autocorrelation and heteroskedasticity highest at 4689842 km for the given timeframe. Similarly,
tests were covered under the PPML regression as PPML the results also suggest that in terms of transport infrastruc-
coefficients are fitted after adjusting these issues and thus, tures (road, rail, wat, air), road infrastructures have the high-
provide unbiased estimates. Finally, the model was fitted est coverage while waterways have the lowest average
based on control variables and checked for robustness coverage. It can be deducted that infrastructure related to
through PPML robust estimation. waterways and air transport require enhancements.
The four main ICT infrastructures, i.e., elec, tel, mob,
and int, are also highlighted in the table. The majority of
Descriptive Statistics: Summary
households, as compared with cellphones, landlines, and
The summary of descriptive statistics of all the variables of internet services, utilizes electricity connections. The use
the model, including the dependent and independent vari- of the internet and cellphones is still new and limited in
ables, is shown in Table 2, which explains a brief overview rural regions of most Asian countries. Some countries
of different statistical outputs of the variables. The results acquired internet and cellphone service in the first decade
were based on 22 variables, out of which 21 were indepen- of the 21st century; therefore, the minimum value for these
dent variables while expi is the dependent variable. The inde- variables is also zero for some countries. Population,
pendent variables were further divided into two parts; (a) 15 investment in infrastructures, and FDI for the countries
Rahman et al. 7

Table 2. Descriptive Statistics.

Variable Obs M SD Min Max

expi 800 7956190.9 19166355 463 1.516e+08
gdpi 800 4.164e+12 2.305e+12 8.637e+11 1.106e+13
gdpj 800 2.309e+12 3.144e+12 8.606e+08 6.203e+12
distij 800 2259.05 856.003 594 4109
road 748 166066.07 612271.69 118.58 4689842
rail 747 36705.017 29208.057 417 67212
air 800 5521.181 6047.239 .013 19805.631
wat 800 85.705 10.388 32.6 100
int 800 18.517 21.273 0 91.058
tel 800 15.856 12.632 0.14 61.574
mob 800 45.232 42.234 0 194.512
elec 779 2228.641 2184.399 20.036 10496.514
pop 800 7.092e+08 6.197e+08 2316567 1.371e+09
inv 722 1.025e+09 2.056e+09 200000 2.203e+10
fdi 769 –5.012e+10 6.808e+10 –2.317e+11 1.450e+11
exrt 785 1.45833 1.032198 0.5494425 29011.492
brd 800 0.675 0.469 0 1
llck 800 0.625 0.484 0 1
clt 800 0.575 0.495 0 1
inc 800 0.1 0.3 0 1
qual 800 0.675 0.469 0 1
fcr 800 0.5 0.5 0 1

show high standard deviation value due to the economic Panel Unit Root Test
differences between China and the trading Asian countries.
These variables also act as controls in our model. The FDI For panel data, the Fisher-Type Unit Root Test based on the
for the selected Asian economies is averaged at USD Augmented Dickey-Fuller test is estimated to determine the
−5.012 billion, demonstrating that most nations’ FDI out- presence or absence of unit root in the model, which is to test
flow exceeds the inward flow of FDI. In the case of the real if the variables in the model are stationary or not. Non-
exchange rate, the average value of the exchange rate for stationary variables cause unbiased estimates in regression
the period 1999 to 2018 is at 1.45833 against dollars. The analysis (Choi, 2001). The Augmented Dicky Fuller Test is
exchange rate of China and the trading partner against the widely used in testing if the variables are stationary or not.
dollar is at the maximum value of 29011.492 (as in the case However, Choi argues that the inverse chi-square test is
of the Vietnamese dong) and a minimum value of 0.5494425. applicable and more potent when the number of panels is
The dummy variable for the quality of transport and infor- definite. The null hypothesis assumes that the main regres-
mation and communication infrastructure assumed only two sors and variables in the model retain unit root (Choi, 2001;
values of minimum zero and maximum one. As mentioned Im et al., 2003). The outcomes of the Fisher-Type Unit Root
earlier, the values of dummy for quality of infrastructure are tests are presented below:
based on the rankings and rating of LPI scores. Similarly, the The results of inverse normal, inverse logit, and the modi-
dummy for the landlocked trading partner of China as repre- fied inverse chi-square test statistics are also presented,
sented by llck also assumed only two values of minimum 0 which affirm the strength of the inverse chi-square test. The
and maximum 1. Countries access and availability to seaport value of the probability to reject the null hypothesis should
and sea routes are given dummy value of 1 and otherwise 0. be less than 0.05 (5%) (Sjö, 2008). According to the above
To understand and check the effect of cultural similarity on table, all the main variables of our model had a probability
trade between china and its trading partners, the clt is also value of less than 0.05, due to which we reject the null
added in the model as a dummy factor (value is 0 if dissimi- hypothesis. Thus, most of the model variables are stationary
lar and 1 if culturally similar with China). The dummy for at levels and a few at first difference.
financial crisis fcr assumes a minimum value of zero, which
represents the period before 2008 and 1 for the post-2008
era. The dummy is added to analyze the trends in interna-
Panel Co-Integration Test
tional trade between China and its trading partners before Before performing regression analysis, it is necessary to
and after the financial crisis. determine whether there are long-run associations between
8 SAGE Open

Table 3. Fisher-Type Unit Root Test based on Augmented Dickey-Fuller Tests.

Inverse chi-squared Inverse normal Inverse logit Modified inverse chi-squared

Variables Statistic Statistic Statistic Statistic

logexpi 152.3827*** (I0) –4.1237*** (I0) –4.3637*** (I0) 5.7224*** (I0)
loggdpi 118.9683*** (I0) –3.1985*** (I0) –3.4004*** (I0) 3.0807*** (I0)
loggdpj 118.9683*** (I0) –3.1985*** (I0) –3.4004*** (I0) 3.0807*** (I0)
logroad 129.3845*** (I0) –5.0991*** (I0) –4.8922*** (I0) 5.7792*** (I0)
lograil 283.3399*** (I0) –8.4677*** (I0) –10.489*** (I0) 16.8175*** (I0)
logair 155.7596*** (I0) –4.2866*** (I0) –4.6633*** (I0) 5.9893*** (I0)
logwat 1873.2942*** (I0) –36.4367*** (I0) –84.4368*** (I0) 141.7724*** (I0)
logint 1627.7517*** (I0) –34.1468*** (I0) –70.7641*** (I0) 122.3605*** (I0)
logtel 463.5422*** (I0) –12.9123*** (I0) –18.0544*** (I0) 30.3217*** (I0)
logmob 1874.794*** (I1) –36.704*** (I1) –81.7532*** (I1) 141.8909*** (I0)
logelec 140.6147*** (I0) –4.9275*** (I0) –4.6241*** (I0) 4.792*** (I0)
logpop 2076.4314*** (I0) –39.0995*** (I0) –94.1813*** (I0) 157.8318*** (I0)
loginv 184.3558*** (I0) –6.482*** (I0) –7.0845*** (I0) 8.7888*** (I0)
logfdi 198.8692*** (I1) –8.461*** (I1) –8.2609*** (I1) 9.3974*** (I1)
logexrt 249.3114*** (I0) –4.937*** (I0) –9.0224*** (I0) 13.3852*** (I0)

Significance of p value: *** p < .01, ** p < .05, * p < .1.

Table 4. Pedroni Co-Integration Test.

Alternative hypothesis: common autoregressive roots (AR) coefficients (within-dimension)

Weighted
Statistic Prob. Statistic Prob.
Panel v-statistic –0.517144 0.6975 –2.616336 0.9956
Panel rho-statistic 2.403294 0.9919 3.106231 0.9991
Panel phillips-perron (PP)-statistic –5.115640 0.0000 –5.200712 0.0000
Panel augmented dickey-fuller (ADF)-statistic –5.347234 0.0000 –5.388523 0.0000
Alternative hypothesis: individual AR coefficients (between-dimension)
Statistic Prob.
Group rho-statistic 4.595243 1.0000
Group PP-statistic –8.496016 0.0000
Group ADF-statistic –7.108687 0.0000

interest variables. The co-integration test implies that a series of 11) are below the threshold level of 0.05 for rejection of
of variables move together in the long run (Canning & the null hypothesis. Thus, the null hypothesis of no co-inte-
Pedroni, 2004). For the panel co-integration test, it is also a gration among our variables is rejected, which indicates our
necessary condition for the variables to be stationary at variables co-integrate in the long run under the gravity
order (I) or first difference. As shown in Table 3, most of the model, which is similar to earlier findings (Gengenbach
variables do not have unit root at the first difference, which et al., 2006). After establishing that our variables are station-
enables us to run the co-integration test. We use the Pedroni ary and are co-integrating in the long run, we proceed to the
co-integration test to check long-run associations among our regression analysis.
variables. The co-integration test’s null hypothesis is the
same as other tests and postulates the absence of co-integra-
Estimation Model
tion among the factors of the equation and model (Canning
& Pedroni, 2004; Engle & Granger, 1987; Sjö, 2008). Table 5 presents the results of the generalized least squares
Table 3 shows the outcomes of the Pedroni co-integration (GLS), Panel OLS, fixed and random, PPML and Robust
test. estimations using the augmented gravity model. Column 1
Table 4 shows the co-integration test outcomes. The through column 5 show panel OLS estimates while column
probability values for most of the tests under Pendroni (6 out 6 demonstrates the output of Panel OLS fixed effects. The
Rahman et al. 9

Table 5. Panel Regression Estimations.

Panel OLS Panel OLS Panel OLS Panel OLS Panel OLS Fixed PPML PPML robust

Variables (1) (2) (3) (3) (5) (6) (7) (8)

loggdpi 1.023*** 1.351*** 1.295*** 0.927*** 1.16*** 1.538*** 0.524*** 0.52***
(0.03) (0.043) (0.039) (0.173) (0.209) (0.217) (0.039) (0.045)
Loggdpj 0.325*** 0.708*** 0.732*** 0.149* 0.306*** 0.473*** 0.111*** 0.111***
(0.03) (0.034) (0.03) (0.087) (0.082) (0.128) (0.004) (0.004)
Logdistij –0.763*** –0.599*** –0.548*** –0.775* –1.149*** - –0.079*** –0.075***
(0.136) (0.138) (0.124) (0.415) (0.378) (0.01) (0.01)
logroad –0.107*** –0.062 0.975*** 0.609*** 0.618*** 0.019** 0.056**
(0.036) (0.041) (0.107) (0.132) (0.15) (0.02) (0.025)
lograil –0.407*** –0.467*** 1.584*** 1.32*** 0.632 0.141*** 0.135**
(0.082) (0.077) (0.295) (0.316) (0.75) (0.051) (0.053)
logair 0.223*** 0.254*** –1.013 –1.74 –1.337*** –1.133*** –1.068***
(0.062) (0.06) (1.31) (1.321) (1.431) (0.263) (0.239)
logwat –0.702 –6.535*** 0.251*** 0.075** 0.024* –0.029**
(0.88) (0.951) (0.058) (0.036) (0.013) (0.015)
logmob –0.903*** 0.635*** 0.752*** 0.481*** 0.24*** 0.2***
(0.1) (0.121) (0.123) (0.099) (0.039) (0.04)
logtel 0.69*** –0.415*** –.487*** 0.127** –0.12*** –0.193***
(0.145) (0.048) (0.052) (0.056) (0.014) (0.025)
logelec 0.331** 0.538** 0.34 1.337*** 0.143*** 0.137***
(0.152) (0.253) (0.262) (0.322) (0.038) (0.038)
logint 0.331*** 0.218*** 0.03** 0.067***
(0.115) (0.053) (0.064) (0.017)
logpop –2.382*** –2.41*** –23.36*** –.443*** –0.454***
(0.309) (0.327) (1.605) (0.053) (0.062)
logexrt –0.598*** –.404*** –0.164 –0.012* –0.011*
(0.107) (0.133) (0.292) (0.021) (0.024)
loginv 0.051 0.037***
(0.048) (0.014)
logfdi –0.17*** –0.006 0.006
(0.05) (0.026) (0.027)
brd –1.506*** –1.148*** –0.036* –0.083*
(0.316) (0.348) (0.045) (0.059)
clt 3.019*** 2.208*** 0.108* 0.132*
(0.459) (0.474) (0.086) (0.09)
llck –1.595*** –1.158** –0.15** –.144**
(0.462) (0.477) (0.06) (0.061)
qual 1.404*** 1.403*** 0.037* 0.03*
(0.365) (0.352) (0.043) (0.05)
fcr –0.239*** –0.232*** –0.083*** –0.076***
(0.061) (0.065) (0.015) (0.016)
inc –0.453* –0.063*
(0.435) (0.066)
_cons –7.34*** –12.95*** –2.798* 5.277** 5.964** 200.926*** 0.343 0.419
(0.753) (1.608) (1.662) (2.657) (2.938) (13.296) (0.456) (0.499)
Year dummy Yes Yes Yes Yes Yes Yes Yes Yes
Observations 800 611 588 580 580 544 544 580
R2 .692 .746 .809 .635 .756 .803 .859 .864

estimates of the PPML approach and robust outputs are pre- El-Dereny, 2011 ). In contrast, others proposed using the
sented in columns 7 and 8, respectively. To avoid the prob- PPML to derive robust and unbiased estimations (Magerman
lem of multicollinearity in the OLS model, scholars have et al., 2016). We have adopted the PPML regression and
proposed the use of nested regression models (Lin, 2008). nested regression models for resolving multicollinearity in
Some experts have proposed using different forms of ridge our model. In addition, the PPML estimates fit the model for
regressions to solve multicollinearity issues (Rashwan & autocorrelation since the technique assumes the condition of
10 SAGE Open

no autocorrelation. Furthermore, because autocorrelation, 2015a; Sardar et al., 2019; Truong et al., 2019). The dummy
multicollinearity, and heteroskedasticity are avoided when for landlocked nations (llck), shows the importance of access
using the PPML model, it can produce unbiased and consis- to sea routes and sea transport in determining a nation’s
tent estimates (Álvarez et al., 2018; R. Rahman et al., 2019). trade. Following literature works, the estimates show that
Thus, the PPML regression model is used for the estimation countries with no access to sea transport have less trade as
and robust coefficients of the model. The results for PPML compared with countries with access to sea routes and sea-
and Panel OLS regressions are consistent for most of the ports (Munim & Schramm, 2018). Similarly, the dummy
main variables in the model, as shown in Table 5. (clt) representing the Asian nations showing similar cultural
Before applying the PPML, it is important to check backgrounds as China also showed a positive and significant
whether our model fits random effects or fixed effects. The impact on the trade, which is in line with the theory but con-
PPML approach is more useful for data that matches the tradicts some recent findings (Hoang et al., 2020). In addi-
model of fixed effects; the Hausman (1978) test is then con- tion, dummies for countries bordering china (bor) and
ducted to decide if the data fits the model of random effects pre- and post-financial crisis years (fcr) estimated to be nega-
or fixed effects. The null hypothesis tested is that the vari- tive. The negative sign for bor shows countries that border
ables conform to the model of random effect. The Hausman with China tend to have lesser levels of trade. In contrast, the
test demonstrates that the null hypothesis is rejected. The negative sign in the case of fcr suggests that trade of Asian
value of the probability of chi-square is 218.349 while the p countries were negatively affected after the financial crisis in
value is less than .05, so we are able to reject the null. Thus, 2008. For all the estimates, the year dummy has been added
the PPML model can be used for model estimation. to control for multilateral resistance in the model along with
Table 5 clearly shows the value of the coefficients, the other dummies and control variables.
elasticity of the main variables, the standard errors, and the
magnitude of the outcome on the dependent variable (trade
flows). Most of the variables, including the main variables,
Discussion
dummy variables, and the control variables, show significant The gravity model’s representing variables, that is, gdpi and
outcomes at 1%, 5%, or 10% level. Gross domestic products gdpj highlighting the value and size of the national output
(gdpi & gdpj) for both China and its trading partners showed and income of the countries, and the distances between China
expected positive signs with significant results. In the case of and its trading partners, that is, distij, all showed outcomes in
the distance between China and its trading partners (distij), accordance with the assumptions of the gravity model
the estimation showed negative and significant results, which (Anderson, 2011; Baniya et al., 2020; Isard, 1954). The
are in line with the theory and our assumptions showing the results for gdpi and gdpj were positive and significant at a
more distance, the lower will be the trade between countries 1% level of significance, showing the high effect of the gdpi
(Bankole et al., 2015b; Bougheas et al., 1999; Donaldson, and gdpj on the trade flows. The value of the coefficient of
2018). 0.524 indicates that a 1% increase in the GDP value will lead
The main variables of transport infrastructure (roads, rail, to an increase in the value of the trade, flows by 0.524 units.
wat) and ICT infrastructure (elec, mob and int) had the Moreover, the coefficient of GDP for the trading partner of
expected positive sign with highly significant values at 1% China represented by gdpi was also significant at 1% level
and 5% significance level. The estimations are in line with and attained the value of coefficient as 0.111 that showed
the expected results and literature studies (Fink et al., 2005; that if the trading partner of China increases its GDP by 1%,
Z. Li et al., 2012; Nordås & Piermartini, 2006). This shows its value of trade flows will increase by 0.111 units. It can be
that the infrastructure, including transport and communica- deduced that the impact of the GDP of the exporting country
tion, have a significant impact on the trade of China and its (China) on trade flows is greater than the impact of import-
trading partners. The estimators also demonstrated low stan- ing countries (Asian Partners). Higher GDP levels between
dard errors. Surprisingly, the coefficients of air transport and trading partners contribute to an increase in trade activities
cellphone usage show a negative impact on the trade. The mainly due to high consumption and demand patterns in the
real exchange rate for both China and its trading nations countries.
(exrtij) also showed a significant and negative impact on the Furthermore, contrary to the outcomes of the GDPs, the
trade between the nations. Moreover, population (popij) value of Distance between the trading partners (distij)
showed a significantly negative impact on trade for the OLS assumed a negative (−) sign which showed an inverse rela-
and PPML estimates. tionship of distance between nations and the trade flows,
Outcomes for the dummy variables of the model were which is in accordance with the theory of the gravity model.
also in line with the expected results. The dummy variable The coefficient of −0.079 of distij shows a significant nega-
representing the quality of infrastructure in both China and tive impact on the trading countries’ trade flow and is signifi-
its trading partners of Asia (qual) showed positive and sig- cant at 1%. The coefficient for distij can be interpreted as an
nificant results (1% for OLS and 10% for PPML). The result increase in the distance of 1% will decrease the trade flows
provided further evidence to the literature (Bankole et al., by 0.079 units illustrating the substantial impact on the trade
Rahman et al. 11

flows. The proximity of trading partners can help in the due to an increase in the exchange rate value by 1%, which is
reduction of transportation cost due to shorter distance, in line with the economic theory of exchange rate. These
which in turn can enhance trade and cooperation. results enable us to determine and assess the importance of
The variable for the transport infrastructure, including real exchange rates in determining the values of trade flows
roads, railways, and sea and waterways, shows expected of the nations. Although the rise in exchange rate tends to
positive signs. Railways proved to be significant at 1% in all reduce trade flows in this case, other factors and policies can
the regressions, while roads and wat proved to be significant alter the impact of the exchange rate on trade. The impacts of
at 1% for panel OLS and 5% level in the case of PPML esti- the exchange rate on trade can vary from country to country
mations. The output demonstrates that the more the increase based on the economic conditions and policies.
in the transport infrastructure of China and trading econo- Diverse results were shown by the dummy variables
mies, the more the country’s trade flows. The output can be inculcated in the equation. The dummy variables for quality
explained as 1% increase in the length of roads, railways, of infrastructure showed positive results, while the dummy
and the amount of sea/waterways infrastructure will increase for landlocked nations showed negative results. As men-
the trade flows of China by 0.019, 0.141, and 0.024 units, tioned earlier, the level of infrastructure and the quality of
respectively. The outputs establish high implications and infrastructure are necessary for influencing the trade and
influence of transport infrastructure on the trade flows, which trade flows of nations. Similar outcomes were reported by
are consistent with the theory (Coşar & Demir, 2016; previous scholars (Abeliansky et al., 2021; Nordås &
Jouanjean et al., 2016; I. U. Rahman et al., 2020). Transport Piermartini, 2006; Sadikov, 2007). The coefficients of the
infrastructure plays a key role in enhancing economic activi- dummy variables for assessing the quality of infrastructure
ties and the flow of tradable goods and services within and for both China and its trading partners (qual) presented sig-
across the borders. Shockingly, the coefficient of air trans- nificant figures at 1% for OLS outputs and 10% significance
port was the negative estimated value of −1.133, which level in the case of PPML estimates, showing the importance
shows that it has a significantly negative impact on trade. of quality of infrastructure in terms of trade flow. The coef-
The output can be attributed to the fact that most of the trade ficient parameters were calculated to 0.037 for qual, which
is transferred through other means of transport in Asian showed that the level of trade flows would rise by 0.037 units
nations, which are mostly connected by land. Compared with due to an increase in the level of the quality of infrastructure.
airfreight, transportation through roads, railways, and sea Based on the estimations, it can be predicted that countries
routes are preferred mostly due to lower costs. with the objective of achieving a higher level of trade flow
Similarly, the proxies for ICT infrastructure of the trading through infrastructure development should also focus on
partners of China represented by mob, int, and elec provided improving and enhancing the quality of the infrastructure,
positive and significant estimations at a 1% level while unex- especially ICT infrastructure (Abeliansky et al., 2021).
pectedly mob estimated to be negative and significant at 1% Likewise, clt also estimated to be positive with a significance
level. The elasticity values for mob, elec, and int estimated at level of 1% in OLS and 10% under the PPML approach. The
0.24, 0.143, and 0.03, respectively, which shows a positive cultural similarity between China and its trading partners
impact of these ICT infrastructures on the trade flows of the contribute to the enhancement of trade between them.
trading Asian nations. In comparison, tel estimated to be Landlocked nations (llck) and countries bordering China
−0.12 showing an increase of 1% would result in reducing (brd) showed coefficient output at 5% and 10% significance
the trade flows of the Asian nations by 0.12 units. This out- levels, respectively. The signs of the variables were negative
come can be linked to the fact that cellphones have gradually (−), which is in accordance with the past theories (Akpan,
replaced landline phones and are in more common use in 2014; Limao, 2001). The coefficient of llck (−0.15) shows
different fields, including trade and commerce. These esti- the impact of the availability of sea transport and sea routes
mations can be easily assessed that both the transport and for the trading nations. The results can be interpreted as the
ICT infrastructure are vital in determining the trade flows level of trade flows is estimated to decrease by 0.15 units due
(exports). Similar to Portugal-Perez and Wilson (2012), the to the unavailability of sea transport and facilities. The nega-
rise in the level of infrastructure facilities both in transport tive sign is in accordance with previous studies, which sug-
and ICT sectors can have considerable implications in gest that countries with no access to sea routes will be
enhancing the trade flows and developing the economic indi- affected by the reduction in transport routes through seaports
cators of all the developing nations. and sea routes (Carrere & Grigoriou, 2008; Fugazza et al.,
Estimates of the real exchange rates for China and Asian 2014; Fugazza & Hoffmann, 2017; Jiang et al., 2018; Li &
Partners (exrt) showed negative and significant values. Schmerer, 2017). Surprisingly, the negative coefficient of
Although there is a difference in the exchange rate policies of brd (−0.036) implies that countries bordering China have
the different nations in Asia with managed and floating lesser trade than nations that are not bordering China. The
exchange rates, still the results showed significant outcomes. results contradict some of the literature due to several rea-
The exchange rate coefficient is −0.012, which can be inter- sons. The countries that border China are mostly low-income
preted as the values of trade flows will decline by 0.012 units economies like Nepal and North Korea, while high-income
12 SAGE Open

economies like South Korea and Japan are near China but do including components of transport and communication
not share a border with it. On the other hand, some neighbor- infrastructure, will increase the exports of the countries.
ing countries like India, Nepal, and North Korea are unable Infrastructure is a crucial element that affects trade posi-
to trade freely due to internal conflicts, political differences, tively and can pave the way for increased trade through
or international sanctions. amplified efficiency of the goods and services transport and
To check the changes pre and post-financial crisis years, transfer. Finding also showed that countries without access
fcr is added as a dummy based on the years before and after to sea routes and unavailability of ports and waterways face
2008. The negative coefficient is significant, and its esti- many problems while trading with other nations as sea
mated value of −0.083 explains that the trade of China and its routes are considered the cheapest way of exchange for
Asian Partners declined after the Financial crisis of 2008. exports and imports between nations. These countries have
Due to the crisis, the world demand reduced, thus the econo- to use alternative ways of transportation for the transfer of
mies had to suffer losses in production, which led to a decline goods and services, which can cushion the gap created due
in overall world trade. Although China recovered quickly to the absence of sea routes and seaports. In addition, the
after the crisis due to government policies (I. U. Rahman findings also highlighted that population, financial crisis,
et al., 2020), the rest of the Asian economies suffered from and exchange rate influenced the trade flows negatively.
economic growth and trade decline. Contrary to the popular hypothesis, the impact of air traffic
In addition, the R-square value showed suitable outcomes transport, common border and use of landline telephones
for the overall model. The value of R-square was set at 85.9 presented negative impacts on trade between China and
for the PPML model, which is high. The high value of Asian economies. Moreover, cultural similarity plays a pos-
R-square depicts that the variables are able to explain 85.9% itive role in enhancing trade, according to the findings.
of the change in the dependent variable of our model. The core point of the article is based on the fact that infra-
Moreover, the standard errors of the variables, including the structure in the form of either transport or ICT infrastructure
main independent variables and the dummy variables, are has enormous implications in defining the economy and eco-
also low, showing the effectiveness of the model in explain- nomic conditions of the countries. Cultural Similarity and
ing the relationship and impact of the independent variables Proximity also plays a crucial role in building relations and
and the dependent variable. cooperation with trading partners. The research results sug-
Finally, the robustness was checked by tallying the main gest that to improve the economic performance in trade and
and robust PPML model results in column 8 of Table 5. The trade flows, a country can build up its main infrastructure
estimates provide robust standard errors in the model, which units and form a strong base of the sector. By doing so, the
enhances the reliability of the estimates. In addition to robust country will achieve higher growth and advancements in all
estimate, there are different measures of the trade, like of its sectors.
investment, used in the literature (Baniya et al., 2020), which
was included in the model for robustness testing. We also
Policy Recommendations
added additional independent variables (inv, fdi and inc). As
the table illustrates that the coefficients, the parameters, and Based on the result of the article, it is evident that the impact
the standard errors of the estimators have not changed sig- of infrastructure (both transportation and communication) on
nificantly; thus, we can conclude that the outcomes of the trade between China and its trading partners is significant,
PPML approximations are robust. which makes it necessary to focus on the sector. Countries
can develop and improve their trade by focusing on their
internal transportation and communication facilities, which
Conclusion and Policy will not only promote mobility and economic activity within
Recommendations the region but will also improve international trade.
Governments should focus on improving communication
Conclusion infrastructure and making it available to the majority of the
During recent years, the progress and development in the population to reap more benefits from services and immerse
world can be attributed to enhancing relationships between the population in a smooth and rapid flow of information,
different nations based on trade and economic cooperation. which can boost trade and economic activity.
Developing nations are on the path of achieving higher In addition to increasing the infrastructure services and
growth and development through the benefits and gains from facilities, it is imperative to focus on the improvement of the
trade. quality of the existing infrastructure. To enhance trade and
Based on the findings of this article, it is evident that for economic activities within and outside the borders of the
the enhancement of trade, utilization of the resources and nations, countries should adopt policies for the improvement
increasing the exports of a country, the impact of infrastruc- of the existing infrastructure facilities. By doing so, the
ture is undeniable. This article shows further evidence of countries will be able to develop the infrastructure sector
the fact that the enhancement of physical infrastructure, more and could enhance the mobility and transportation of
Rahman et al. 13

goods and services. In addition, increasing cooperation Asian economies, should also prioritize soft power develop-
with bordering nations and sharing cultural values can ment through cultural exchange programs.
enhance soft power and improve bilateral relations. Cultural
exchanges and developing soft power can act as a key for
Future Research
sustainable and enhanced cooperation.
In terms of China, when compared with the eastern areas, The implications of the model used in this article are adverse
the western parts of China can be used more efficiently, and and can provide a base for other nations to focus on imple-
resources can be obtained more simply through infrastruc- menting projects related to infrastructure development. The
tural development. In this regard, the Chinese government, article included the main determinants of the trade flows
led by President XI Jing Ping, has already launched major using PPML estimation based on the augmented gravity
infrastructure projects centered on the development of infra- model. Time variant was used, but due to the unavailability
structure in western regions and linking them to expand and of the relevant data, the variable was dropped. The time dis-
boost trade with its trading partners. BRI and CPEC projects tance between nations can be used for future research pur-
can certainly lead China into a new world of trade and busi- poses to check the impact of infrastructure in reducing the
ness partnerships and the development of linkages with other time distance between trading nations and trading goods.
nations in addition to development and progress. This will certainly provide better evidence on the influence
The findings of the studies allow us to advocate that Asian of infrastructure in increasing the trade flows by enhancing
economies change their policies in favor of investing in new mobility and providing time efficiency by reducing the time
infrastructure development and renovation of current facili- of transportations of imported and exported goods.
ties. China has already surpassed the United States in terms For future references and research purposes, the use of
of the high quality and performance of transportation infra- New Infrastructure (Wikipedia, 2020) and other non-physical
structure and other relevant infrastructure (Donaubauer, infrastructure can be included and focused. The non-physical
Meyer, et al., 2016; The World Bank, 2018). The level of infrastructure can contribute to better results, as the influence
economic growth and enhancement of trade that China has of non-physical infrastructure on trade and economic devel-
achieved is credited to the developments and innovations in opment are also adverse and assumed to be significant. An
both Transport and ICT infrastructures. China’s megaproj- index based on different types of infrastructures can also be
ects, such as BRI and CPEC, as well as international collabo- developed and estimated for enhanced modeling and analy-
rations, aim to improve all major infrastructures, both in sis. Further studies in this regard can open new paradigms in
terms of transportation and ICT. Such projects provide a the infrastructure and information and communication sec-
foundation for Asian countries to participate in, develop, and tors. Furthermore, in-depth analysis of air transport and
expand their economies, as well as enhance trading opportu- types of good traded through air routes are required, which
nities. In addition, the Chinese government, which intends to may also provide unique outcomes for future researchers
spend and invest vast sums in building new infrastructure in and scholars.

Appendix
List of Selected Asian Countries and Status in Terms of Access to Seaport.

Countries Landlocked (Yes/No) Countries Landlocked (Yes/No)

Bangladesh No Nepal Yes
Cambodia No Pakistan No
China No Philippines No
India No Saudi Arabia No
Indonesia No Singapore No
Iran No Sri Lanka No
Japan No Tajikistan Yes
South Korea No Thailand No
Kyrgyzstan Yes Uzbekistan Yes
Maldives No Vietnam No
Mongolia Yes
14 SAGE Open

Acknowledgments Asian Development Bank. (2018). Basic statistics 2018.

Asian Development Bank. (2020). Basic statistics 2020. https://
We are highly indebted and grateful to all the generous support,
www.adb.org/publications/basic-statistics-2020
valuable feedback, and expert reviews received during the com-
Athukorala, P. C. (2011). Production networks and trade patterns in
pletion of the article from the team of Center for Trans-Himalaya
East Asia: Regionalization or globalization? Asian Economic
Studies, Leshan Normal University. Special thanks to Prof. Lang
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Lihua, Dean, School of Economics, Capital University of
Baniya, S., Rocha, N., & Ruta, M. (2020). Trade effects of the
Economics and Business Beijing, for his useful comments and
New Silk Road: A gravity analysis. Journal of Development
guidance. We duly appreciate and sincerely acknowledge the con-
Economics, 146, 102467. https://doi.org/10.1016/j.jdeveco
tributions of all colleagues and staff members.
.2020.102467
Bankole, F. O., Osei-Bryson, K. M., & Brown, I. (2015a). The
Declaration of Conflicting Interests impact of information and communications technology infra-
The author(s) declared no potential conflicts of interest with respect structure and complementary factors on intra-African trade.
to the research, authorship, and/or publication of this article. Information Technology for Development, 21(1), 12–28.
https://doi.org/10.1080/02681102.2013.832128
Funding Bankole, F. O., Osei-Bryson, K. M., & Brown, I. (2015b). The
impacts of telecommunications infrastructure and institutional
The author(s) received no financial support for the research, author-
quality on trade efficiency in Africa. Information Technology
ship, and/or publication of this article.
for Development, 21(1), 29–43. https://doi.org/10.1080/02681
102.2013.874324
Ethics Statement Bartle, J. R. (2017). Transportation infrastructure. In Handbook
Not applicable as the article is not for animal and human studies. of public sector economics. CRC Press. https://doi.org/10
.4324/9781315093185-14
ORCID iD Bergstrand, J. H. (1985). The gravity equation in international trade:
Some microeconomic foundations and empirical evidence. The
Imran Ur Rahman https://orcid.org/0000-0003-4505-4240
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