ESTIMATING THE BILATERAL TRADE COSTS BETWEEN MONGOLIA AND CHINA BASED ON THE IMPROVED GRAVITY MODEL

Abstract

Abstract: Since 1995 Mongolia and China have maintained steady long-term mutually beneficial and win-win cooperative relations. China has been Mongolia’s largest trading partner for more than ten consecutive years. In recent years, as the two countries started to attach significant amount of importance to the construction of the New Silk Road Economic Belt, the bilateral ties between Mongolia and China is strengthening while the trade between the two countries is expected to grow. However, trade cost has always been a major factor obstructing the development of bilateral trade between Mongolia and China. Therefore, this paper uses the improved gravity model put forward by Dennis Novy (2013) to estimate the bilateral trade costs between Mongolia and China from 1995 to 2015. The empirical results show a clear downward trend from 1995 to 2015, with the decline of trade costs by 28%. But subject to various factors, the fluctuation of bilateral trade costs is significant.