Does the belt and road initiative resolve the steel overcapacity in China? Evidence from a dynamic model averaging approach

Abstract

The Belt and Road Initiative (BRI) is an important long-term development plan in China. The initiative aims at expanding international markets and resolving the domestic steel overcapacity. This paper applies the dynamic model averaging and dynamic model selection estimation techniques to investigate the determinants for steel consumption, forecast steel consumption, and explore whether the BRI can resolve the steel overcapacity in China. In terms of the in-sample regression analysis, the results show that the demand of countries along the BRI is significantly and positively related to the steel consumption in China. In the out-of-sample predictability after 2014, the BRI would gradually resolve the steel overcapacity in China. It is predicted that by the end of 2020, China will be left with between only 32.1 and 58 million tons of crude steel.