China's foreign trade policy with OPEC member countries

Purpose - The purpose of this paper is to analyze specifications of the China's foreign trade policy with Organization of the Petroleum Exporting Countries (OPEC) member countries. Design/methodology/approach - The paper conducts three panel data estimations (fixed effect [FE], random effect [RE] and fully modified ordinary least squares [FMOLS]) based on the gravity model approach for bilateral trade patterns in natural resource and non-natural resource commodities between China and 13 OPEC members over the period of 1998-2014. Findings - The findings reveal that the gravity equation fits the data reasonably well. The existence of long-term relationships between the bilateral trade flows and the main components of gravity model - GDP, income (GDP per capita), the difference in income, exchange rate, the openness level, distance and WTO membership - through the FE, RE and the FMOLS approaches was confirmed. The estimation results show that the trade pattern between China and OPEC member countries relies on the Heckscher-Ohlin theory, thus being explained by difference in factor endowments such as energy resources and technology. Originality/value - To the best of the authors' knowledge, this is the first attempt to examine the China's foreign trade policy with the OPEC member countries through a gravity trade approach.