1. Introduction
Economic development has been shown to be closely related to international trade, and the direction of this relationship may be twofold. First, countries with more developed economies are more likely to have higher purchasing power, resulting in higher demand for imported goods and greater demand for international trade. On the other hand, with international trade, local economies will develop rapidly. In fact, international trade may be one of the most important factors affecting the huge differences in economic development among post-Soviet countries.
The empirical results show that there is a close relationship between international trade and sustainable development, which focuses on promoting prosperity and protecting the earth. At the global level, countries around the world promote the three indicators envisioned in sustainable development by integrating into the world economy with other countries around the world that follow the same goals and increasingly participating in global value chains: solving employment pressure and growing the economy and eliminating poverty. The IMF staff noted that international trade has driven economic development, and therefore, it is emphasized that both developing and developed countries have benefited from this economic boom, which has brought about an increase in income and living standards and is conducive to poverty eradication.
According to relevant researchers, trade has a positive impact on income. Starting from the United Nations Conference on Trade and Development (UNCTAD) held in 2006, many developing countries have successfully participated in international trade, which has greatly helped these countries attract a large amount of foreign direct investment and provided them with a sustainable economic development engine.
Since then, free trade has reversed the situation and become a more important focus of economic growth in developing countries. Since joining the global value chain, there has been a sharp surge in free trade in traditional basic products, manufactured goods, and services in developing countries. Market-oriented reforms and the implementation of free trade have achieved higher incomes and accelerated economic growth.
With the acceleration of China’s free trade strategy promotion, empirical evidence on the impact of participating in the global market on China’s economic growth should have a stimulating effect on the decision-making of some policymakers. Although there are many studies on the relationship between international trade and economic growth in the Chinese context, from a policy perspective, little is known about the impact on sustainable economic growth and some positive effects of economic policies that encourage foreign sectors to participate in international trade and export expansion.
In addition, the two-way causal relationship between international trade and GDP growth has actually fundamentally promoted China’s economic development. Therefore, it is necessary for this article to focus on the impact of international trade on sustainable economic development.
2. Background of International Trade Theory
Early mercantilism believed that the only form of wealth was gold and silver, and the amount of gold and silver was the only measure of a country’s wealth, and the main channel for obtaining gold and silver was international trade. By rewarding exports and limiting imports to obtain a surplus, so that gold and silver flow in, the country will become rich.
Adam Smith’s absolute advantage theory believes that in the international division of labor, each country should specialize in producing products with absolute advantages and exchange part of them for products with absolute disadvantages, so that the resources of each country will be used most efficiently, better promote division of labor and exchange, and enable each country to obtain the greatest benefits.
The subsequent comparative advantage theory believes that following the principle of taking the heavier of two advantages and the lighter of two disadvantages, it is believed that the relative differences in technological levels between countries produce differences in comparative costs, constitute the cause of international trade, and determine the pattern of international trade.
Heckscher-Ohlin (H-O) theory explores and reveals the essence of the connection between GDP growth and international trade growth. Specifically, the theory describes general equilibrium, emphasizing the pattern of production specialization and trade exchange based on a country’s relative factor abundance and factor intensity. In other words, the H-O theory argues that in the absence of trade, a developing country with a large unskilled labor force will have a lower relative price of unskilled intensive goods.
As the theory argues, trade contributes to the convergence of relative prices of products. In response to trade, the relative prices of export goods produced by intensive unskilled labor tend to rise.
In the framework of the H-O theory, the Stopper-Samuelson (S-S) theorem, the factor price equilibrium theorem, the Rybczynski theorem, and the total economic efficiency theorem explain the impact of trade on growth in detail. Specifically, the S-S theorem states that in international trade, an increase in the relative price of traded goods that intensively use a country’s abundant factors will increase the prices of these intensively used factors. Meanwhile, the factor price equilibrium theorem assumes that the two countries involved in the trade face the same commodity prices and production technologies and produce the same two commodities. This theorem assumes that the existence of international commodity trade makes the prices of the same production factors reach equilibrium between the countries involved.
In the 1960s, American economist Krugman and others proposed the trade theory of economies of scale to explain the phenomenon of scale economy trade between countries with similar resource reserves and the two-way trade between similar industrial products, and formed the contemporary trade theory. Countries use economies of scale to produce a limited number of products. If each country only produces a few types of products, then the production scale of each product will be larger than the scale of producing all products, so as to achieve the scale benefits of international division of labor, which is the basis of modern international trade.
3. Factors affecting international trade
From the perspective of export trade, there are many factors that affect a country’s export trade. First, the abundance of natural resources. If a country has abundant natural resources, in addition to meeting the needs of domestic production and consumption, there are surpluses, or the country’s resources are relatively abundant internationally, it can use the absolute and relative advantages of such resources to increase exports to obtain foreign exchange income.
Secondly, the level of production capacity and technology. The higher the production capacity and technology level of a country, the stronger the competitiveness of its processed products in the international market, and the higher the added value of its export products, which will not only increase the number of exported goods, but also increase the export volume. Third, the level of exchange rate. If a country’s currency exchange rate falls, that is, it depreciates against foreign currencies, the amount of foreign currency exchanged for the local currency will increase, which means an increase in the purchasing power of foreign currencies and a relatively low price for domestic goods and services.
This makes it possible for exporters to reduce the price of export goods and increase exports without reducing their profits. At the same time, this is also conducive to the increase of tourism income and other service income in the country. Similarly, if a country’s currency exchange rate rises, it will lead to the opposite result. Finally, the level of a country’s export trade depends not only on the country’s economic situation, but also on the level of international market demand and changes in demand structure.
For example, in the case of a global economic downturn, international market demand is not strong, and the export trade of various countries may decrease as a result.
From the perspective of import trade, the factors that affect a country’s import trade are as follows. First, a country’s total economic volume or total output level. Generally speaking, the higher the level of a country’s total economic output and the larger the scale of its economic volume (such as GDP), the greater its import trade volume.
The second is the exchange rate level. The exchange rate level not only has an important impact on export trade, but is also an important factor affecting a country’s import trade. If a country’s currency exchange rate rises, that is, the currency appreciates, the price of imported goods denominated in the local currency will fall, and the demand for imported goods by the local residents will increase. In order to meet this demand, import trade must be expanded. Of course, if the exchange rate falls, it will lead to a reduction in import trade. In addition, the level of a country’s import trade is also directly related to the supply and price level of goods in the international market.
In the international market, if there is a shortage of goods supply, resulting in a sharp increase in prices, a country’s import trade will be affected; vice versa. The level of development of a country’s foreign trade depends not only on the country’s overall economic situation and economic strength, the competitiveness of its products, and the supply and demand relationship in the world market, but also on the restrictions or trade policies of various governments on import and export trade.
In addition to the above discussion, the economic scale of a country (measured by GDP or GDP per capita) will also have a positive impact on international trade integration.
Countries with higher GDP and GDP per capita have more goods and services to export and higher purchasing power to purchase imported products. In addition, economic prosperity is usually associated with a high degree of specialization, which will further strengthen international trade because highly specialized countries need to import products that they do not produce.
Effective international trade requires a lot of infrastructure and logistics, because traditionally, trade means moving goods. The density of roads, railways, ports and airports is huge, and the net length of roads and infrastructure is also crucial for international trade, especially for countries without access to the sea. Hanousek and Kocenda show that the ease with which goods can be transported across borders affects the time and cost of transport.
For example, in the case of energy trade, pipelines, wires and other connections greatly facilitate trade. We can assume that in addition to the absolute density of infrastructure, differences in density can be huge for trade integration. Although one country may have excellent infrastructure, if another country has poor infrastructure, then if it becomes wealthy, traded goods are destined to stay at the border.
International trade is also heavily affected by the geographical proximity of countries and the fact that trading countries share the same borders. The impact of borders on international trade is well documented, but not well understood. Although in peacetime, common borders can be beneficial for trade (because countries do not have to transport goods through the territory of third countries), in the case of military conflict, when direct trade is not possible, goods begin to flow through the territory of third countries (such as trade between Russia and Ukraine), and therefore, common borders have a positive impact. In general, the nature of border effects caused by trade barriers and comparative advantages is unclear.
Last but not least, the ability of people to speak the same language facilitates trade integration. In the Western world, English, Spanish or French are often used as trade languages, and the traditional lingua franca in the post-Soviet space is Russian. Currently, Russian is the official language of four countries (Belarus, Kazakhstan, Kyrgyzstan and Russia), although all countries use Russian as an informal language and the lingua franca is part of the integration process.
4. Data and Results Analysis
The export-oriented growth strategy argues that export expansion and trade liberalization are key determinants of growth due to positive economic externalities. According to Baldwin et al., international trade creates a huge world market, so economies can benefit from acquiring international technology transfer and spillover effects and increasing profits from economies of scale and specialization, which will help their technological improvements.
However, over-reliance on an export-oriented growth strategy may make a country vulnerable to external shocks, such as economic recessions in other areas. During the global financial recession, negative shocks in the United States prompted developing countries to adopt export-oriented growth strategies and suffer economic recessions. For example, since the reform and opening up in the late 1970s, China has promoted the rapid development of its economy by adopting a low-cost and export-oriented strategy and participating in the global value chain.
Considering the potential negative shocks or economic threats, the Chinese government has begun to adopt a “dual circulation” strategy that focuses on both domestic and international circulation.
Through the analysis of historical annual data on China’s real GDP, exports, and imports (covering 1986 to 2022), we infer that shocks in trade are more likely to affect trade variables than GDP. In addition, the impact of imports on economic development fluctuates more than that of exports. Through the analysis of the data, we can conclude that there is a long-term relationship between international trade (including imports and exports) and GDP.
Although short-term shocks can cause fluctuations in time series, these time series tend to converge in the long run. Given that China relies mainly on exports, there is a unidirectional causal relationship between GDP and exports, indicating that export growth leads to economic growth. Expanding and promoting exports enables China to expand its economy in a variety of ways, such as accumulating national foreign exchange earnings and attracting foreign investment inflows, improving capacity utilization and technological progress, and developing its economy more rapidly.
The impact of international trade on national economic development is also reflected in the following points.
First, if a country has a surplus, that is, exports are greater than imports, it will inevitably affect the country’s productivity and economic growth, and the same is true for deficit countries. Secondly, from the perspective of national development level, developed countries must be the controllers of trade, which is definitely beneficial to developed countries. They can import labor-intensive products from developing countries and then focus on developing high-tech and innovative industries to lead the times.
In addition, there are some countries with labor-intensive industries that are not highly developed and have a large population, but economic growth lags behind. At this time, international trade brings them opportunities to grow their economy. By exporting products that they are good at and low-cost, it can be said to be the best of both worlds. Developed countries have achieved the effect of importing and consuming cost-effective products, while developing countries and some small countries have achieved the effect of economic growth and driven economic growth.
For my country, an important national condition at present is that my country is still a developing country, the degree and level of economic development are not among the top ranks in the world, and the structure of economic development is not optimized. With the development of international economy and trade, other countries have a deeper understanding of the vastness of the Chinese market, and the number of foreign businesses and businessmen has gradually increased, which has strengthened the introduction of foreign capital and promoted the better and faster development of my country’s multinational companies.
The development of multinational companies can not only promote the internationalization of industry business models and enhance the comprehensive competitiveness of enterprises, but also increase the liquidity of international capital and promote the better development of Chinese enterprises.
5. Results and Prospects
We can infer that, first, in the long run, China’s GDP growth and international trade are inseparable, and exports in international trade promote GDP growth, and exports accelerate the growth of import capacity in the long run. Second, there is a permanent equilibrium relationship between GDP and international trade (exports and imports).
Export growth not only promotes the long-term growth of China’s economy, but also promotes China’s sustainable import capacity. Third, the positive impact of export-oriented policies on GDP growth in international trade is statistically significant. Considering the contribution of export-oriented growth policies to economic growth, policymakers should continue to implement export-oriented growth policies; in addition, this strategy also brings external shocks to a country. Therefore, policymakers who are enthusiastic about export-oriented growth policies in international trade need to consider more.
