Abstract
This paper uses international trade data to assess the degree of exposure of Belt and Road economies to China trade shocks. It finds that the growth of China's trade following its internal transformation and accession to the WTO significantly impacted the export performance of Belt and Road economies in the period 2000-2015. The increase in China's imports significantly boosted the exports of these economies. However, this effect was attenuated by increased competition from China in export markets. The effects of China's demand shocks were stronger in more upstream industries, while those of competition shocks were stronger in industries that produce goods that are closer to final use. The effects of competition shocks were also relatively stronger in countries that are relatively poorer and geographically closer to China. Building on these findings, the paper documents the current degree of exposure of Belt and Road economies to China trade shocks.
Highlights
In recent decades, China has become a major player in global trade
The Belt and Road (B&R) Initiative seeks to deepen China’s international integration, notably by improving infrastructure and strengthening trade and investment links among the economies involved (Table A1 in the Appendix reports the unofficial list of B&R economies considered in this study)
These results suggest that, in more recent years, China supply shocks had a stronger negative impact on exports of B&R economies, while demand shocks associated with rising Chinese imports were significant
Summary
China has become a major player in global trade. Between 1995 and 2015, its share of world exports grew from about 4% to over 15%. China is a major importer of manufactured inputs used in the production of its own exports. As emphasized by Autor et al (2013), the rising importance of China’s trade over this period reflected several intertwined developments: (i) the transition to a market-oriented economy, which involved the rural-urban migration of more than 150 million workers (Chen et al, 2010); (ii) increased access to previously banned foreign technologies, capital goods and intermediate inputs (Hsieh and Klenow, 2009); (iii) the fact that multinationals were increasingly allowed to operate in the country (Naughton, 2007); and (iv) the accession to the WTO giving China most-favored nation status among WTO members (Branstetter and Lardy, 2006). The B&R initiative is composed of five main priorities: (1) infrastructure connectivity; (2) coordination of development strategies and policies; (3) trade facilitation to ensure “unimpeded trade”; (4) financial integration; and (5) people-to-people exchange
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