Monetary Policy and the Time-Varying Spatial Effects of Bilateral Trade: Evidence from China-ASEAN-5 Countries

This paper examines the China-ASEAN (Association of Southeast Asian Nations)-5 bilateral trade balances by using a time-space simultaneous gravity model with a panel smooth transition regression specification. This model can investigate both internal and external bilateral trade. The empirical results show that a larger real interest rate differential between China and a member country of the ASEAN-5 would switch the negative spatial effect to a positive one, causing a higher average spatial effect from the bilateral trade balance. The time-varying marginal effects of the determinants of bilateral trades are verified. However, the geographical distance of each country pair remains the most important deterrent to China-ASEAN-5 bilateral trade.