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Zhao Guoqin and Sam Dzever

Transaction cost has emerged as a core concept in the New Institutional Economics (NIE) and an important theoretical tool for researchers in this field. Measuring transaction costs and the quantitative analysis of the relationship between transaction costs and other economic indicators has become a central theme of analysis in the NIE. By measuring China’s macroscopic transaction costs since 1978 and utilizing a dynamic econometric model, this chapter analyzes the relationship between macroscopic transaction costs and China’s economic growth and trade structure changes. The findings suggest that in the mid- and long-term, growth in China’s macroscopic transaction costs does stimulate exports while restraining domestic trade. Thus, macroscopic transaction costs can be said to have indirectly changed China’s trade structure leading to the persistent surplus it has recorded against its major trading partners over the last few years. Key words: macroscopic transaction costs, economic growth, trade structure changes, Chinese economy.