Trade potential between mainland China and Taiwan

We examine the value and pattern of trade across the Taiwan Strait if trade restriction is removed. To this end, we use a gravity equation model to estimate trade potential between Mainland China and Taiwan, given the conventional determinants of trade. Our results suggest that given their sizes, the stages of their economic development, bilateral distance as well as other characteristics, Taiwan’s imports from Mainland China should be more than double that of the current value if Taiwan can import freely from Mainland China, as other East Asian economies do. Interestingly, Taiwan’s actual exports outperforms what the model predicts, suggesting that Mainland market is more open to Taiwan than Taiwan’s market to Mainland.