Heterogeneity of trade efficiency and pathways for realizing potential between China and the Belt and Road countries: a test based on a stochastic frontier gravity model

Abstract

The faster-than-average growth of China's trade with the participating countries of the Belt and Road Initiative, whose share in the country's total foreign trade turnover has exceeded one half, is accompanied by pronounced heterogeneity of outcomes across individual regional groups, which aggregate indicators fail to capture. It remains an open question whether the observed dynamics reflect an improvement in the realization of trade potential or an expansion of the gravity frontier of exchange itself. The aim of the study is to quantitatively separate these two processes and to assess the heterogeneity of trade efficiency between China and the initiative's partners. A stochastic frontier gravity model with one-step estimation of inefficiency determinants following the Battese-Coelli specification is applied to a panel of 54 partner countries for 2015-2025. It is found that the average technical efficiency of trade increased from 0.509 to 0.612, while interregional dispersion remained at about 19% in terms of the coefficient of variation. The highest efficiency values are recorded for the countries of Southeast Asia (0.781), and the lowest for participants from Africa (0.443) and from Central and Eastern Europe (0.488). The aggregate unrealized trade potential is estimated at approximately 37,6% of the frontier level, and the relative reserve is inversely related to the partner's logistics performance and institutional quality. The persistence of a stable efficiency gap amid a general rise in efficiency indicates that the increase in turnover is achieved mainly through widening the frontier of exchange, while the equalization of the conditions for its realization lags behind.