Estimating production gains from international cooperation: Evidence from countries along the Belt and Road

Abstract

The pros and cons of economic cooperation and integration have often been debated in the literature. Trade theory suggests that national economies could benefit from multilateral cooperation in international trade and investment owing to transnational division of labour, the mobility of production factors and technology diffusion. The Belt and Road Initiative (BRI) can help promoting economic cooperation and development among BRI countries. This paper embarks on analysis of the potential economic growth for selected BRI countries by investigating technical inefficiency and structural inefficiency. The latter measure assesses the potential gains in productivity due to economic collaboration. The scenario analysis identified China’s influence on pushing the production frontier and optimising resource allocation for the participating countries. The empirical results indicate that structural optimisation may result in higher productivity gains than reduction in technical inefficiency at the country level. Therefore, economic collaboration may facilitate appealing results for the BRI.