Abstract
The “One Belt and One Road” (OBOR) initiative proposed by China aims to promote highly efficient resource allocation, deep regional integration, and extension of global value chains (GVCs). The main challenges faced by OBOR include large variations in regional institutions and a high degree of political instability among OBOR countries. This paper examines the linkage between regional institutions and GVC participation. First, we show that OBOR countries have much weaker institutions and less GVC participation than non-OBOR countries. Second, we find that institutions play important roles in GVC participation in both OBOR and non-OBOR countries. Improved regulatory quality, political stability, government effectiveness, and rule of law can significantly promote GVC participation in institutionally sensitive industries. Finally, a firm-level analysis that is based on the World Bank's Enterprise Survey Data indicates that better quality local institutions encourage firms to participate in GVCs.
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