The Belt & Road Initiative and the public and private debts of participating countries: The role of China's economic policy uncertainty

Abstract

This paper investigates the effects of China’s economic policy uncertainty on external debts in countries involved in the Belt & Road Initiative. We first investigate an investment decision model to show heterogeneous effects on public and private debts. We then estimate such effects with recent data using a Propensity Score Matching (PSM)-Difference in Difference (DID) approach. We find that China’s economic policy uncertainty has intermediary effects on the scale of the external debt For the Belt & Road participating countries. We also show that there exists a significant difference in the effects on external public and private debts. The effects of economic policy uncertainty on total external debts in the participating countries are mainly attributable to the effect on the private sector debt rather than the public sector debt.