Trade efficiency and potential between China and Sri Lanka under the Belt and Road Initiative - Based on Stochastic Frontier Gravity Model

Abstract

Analysis of the trade potential and influencing factors between China and Sri Lanka is conducive to scientifically grasping the trade trends between the two countries since the joint construction of the Belt and Road Initiative, and providing references for promoting the high-quality development of China-Sri Lanka economic and trade cooperation. Based on the panel data of bilateral trade between China and Sri Lanka from 2000 to 2024, this paper employs the stochastic frontier gravity model and trade inefficiency model to analyze the bilateral trade efficiency, trade potential, and their influencing factors. The research results show that GDP has a positive impact on trade volume, while population and distance have a negative impact. Among the trade inefficiency factors, China’s direct investment in Sri Lanka, government efficiency, and whether a free trade agreement has been signed have a positive relationship with trade volume. There is considerable room for expansion in China-Sri Lanka trade, and the trade potential remains to be further tapped. Therefore, China and Sri Lanka should enhance political mutual trust and policy communication, optimize the bilateral trade structure, increase investment and development efforts, accelerate the construction of bilateral free trade areas, and carry out multi-level cultural exchanges.