Please use this identifier to cite or link to this item: http://hdl.handle.net/20.500.11861/6404
Title: Evidence on PPP with China along the belt and road using the three-regime TAR cointegration tests
Authors: Dr. WOO Kai Yin 
Dr. LEE Shu Kam 
Shum, Paul 
Issue Date: 2021
Source: Empirical Economics, 2021, vol. 60, pp. 2391-2405.
Journal: Empirical Economics 
Abstract: The Chinese Government has proposed the ‘Belt and Road Initiative’ (BRI) in order to increase trade flows and economic prosperity among the Belt and Road (BR) member countries. The BRI may call for enlargement of economic cooperation as manifested by forming an economic or monetary union in the long term. It is therefore essential to choose a subset of member countries that fulfils the criteria for joining the potential economic or monetary union. The validity of purchasing power parity (PPP) implies well-integrated goods markets and is a pre-condition for further economic convergence. While the presence of transaction costs causes nonlinearities in the adjustment mechanism, our empirical study applies a three-regime threshold autoregressive (TAR) cointegration method for analysis. Our results support the existence of a PPP relationship with China for 12 sampled Asian member countries. Chinese policymakers can prioritize these BR countries for closer economic cooperation. Also, this TAR cointegration method can estimate the unobservable proportional transaction costs from the thresholds. The results reveal BR countries with large thresholds as targets to curtail transaction costs of trading in order to enhance the efficiency in international goods arbitrage and the degree of trade integration along the BR routes.
Type: Peer Reviewed Journal Article
URI: http://hdl.handle.net/20.500.11861/6404
ISSN: 1435-8921
0377-7332
DOI: 10.1007/s00181-020-01884-6
Appears in Collections:Economics and Finance - Publication

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