MODELING SINO–US POLITICAL RELATION: EVIDENCE FROM GEOPOLITICAL ECONOMIC AND TECHNOLOGICAL ASPECTS

Abstract

This paper investigates Sino–US political relation (SUR) from global economic policy uncertainty (EPU), geopolitical risk (GPR), and technological innovation progress (TIP), using time-varying parameter-stochastic volatility-vector auto-regression (TVP-SV-VAR) model. The empirical results show that the relationship between SUR and the other three variables is unstable and time-varying. In detail, both EPU and TIP exert negative impacts on SUR, reflecting the US’s apprehension regarding its leading position in both economic and technological domains. Conversely, GPR shows a positive correlation with SUR, attributed to the necessity for China and the US to collaborate in international security events such as terrorism. A significant contribution lies in the development of a multi-dimensional theoretical framework centered on the Sino–US relationship. This framework effectively captures the dynamic nature of their relations across various time frequencies and points in time. Further, this paper provides advice that China should independently develop its technology and enhance economic strength, and is willing to compete with the US, while also seeking cooperation amidst competition.