Determinants of China–Japan Bilateral Trade under RCEP: Evidence from Trade Flows, Imports and Exports

Abstract

Under the Regional Comprehensive Economic Partnership (RCEP), recent policy frictions have increased the uncertainty level of the trade. Moreover, existing studies mainly focus on RCEP at the regional level or single determinant of trade, with less attention to how the trade factors jointly affect China-Japan bilateral trade across trade flow, imports and exports. To address this gap, this study uses annual data from 2010-2024 and applies ordinary least regression to examine the models for total trade flow, imports and exports separately. The core explanatory variables are trade openness, foreign direct investment and economic policy uncertainty, while GDP, inflation rate, population size and consumer price index are included as control variables. The results represent clear differences between China and Japan. For China, trade flow and exports are mainly driven by trade openness and foreign direct investment, while imports are mainly driven by GDP. These results indicate China plays as a outward-oriented trade patterns role under RCEP. For Japan, trade flow is effected by trade openness, foreign direct investment, GDP and economic policy uncertainty, while imports and exports are mainly driven by GDP. Moreover, economic policy uncertainty has effects on the bilateral trade, which being significantly negative for Japan’s trade flow but insignificant for China. These findings indicate that under the processing of RCEP, policy uncertainty still constrains the bilateral trade performance, so more stronger coordination and more stable policy communication remain essential for promoting the trade between China and Japan.