Partner Similarity and The Sectoral Evolution of China's Trade

We study how the sectoral composition of exports and imports shapes bilateral trade flows.Building on earlier similarity indices, we introduce the Partner Similarity Index (PSI), which measures sectoral alignment between a country's export structure and its partner's import demand.Embedded in a gravity framework, PSI is a strong predictor of bilateral trade flows after accounting for standard gravity determinants, trade policy variables, and high-dimensional fixed effects.Applied to China and advanced economies, the index reveals growing asymmetries: China's export basket is increasingly aligned with advanced-economy import demand, while China's import demand has become progressively less aligned with advanced-economy exports.