Is a friend in need a friend indeed? Geopolitical risk, international trade of China, and Belt & Road Initiative

Abstract

ABSTRACT This study examines the impact of geopolitical risk on bilateral trade flows of China with its major trading partners. It is generally perceived that geopolitical risk exerts a negative impact on bilateral trade flows. Especially, this paper pays particular attention to the moderating effect of the Belt and Road Initiative (BRI) for the negative association between geopolitical risk and economic relationship. In this regard, monthly bilateral flows of China with major BRI and non-BRI economies, respectively, are analysed for the period of 2001–2022. The results indicate that bilateral trade flows of China are negatively associated with the level of geopolitical risk for the whole period. However, there is distinction between the BRI and non-BRI economies during the post-BRI period (2014–2022). While the negative relationship generally holds for non-BRI economies, Chinese economic tie with BRI members rather gets closer in the rise of geopolitical risk. The findings in this study offer empirical evidence on the relationship between geopolitical risk and bilateral trade flows as well as the moderating effect of economic cooperation in uncertain times.