Abstract
This paper takes a first look at the trade effects of China’s Belt and Road Initiative (BRI), also referred to as the New Silk Road, on the 65 countries potentially involved. The pillar of the initiative consists of a number of infrastructure investment projects to improve the land and maritime transportation in the BRI region. We first use geo-referenced data and geographical information systems (GIS) analysis to compute the bilateral time to trade before and after the Belt and Road Initiative. Then, we estimate the effect of improvement in bilateral timeliness to trade on bilateral export values and on trade patterns using a gravity model and a comparative advantage model similar to Nunn (2007). We use physical geography features of transit countries as instruments of bilateral trade time to address the endogeneity between trade and infrastructure. We find that (i) the BRI would have sizeable effects on trade flows among participating countries; (ii) these effects would be magnified if deeper trade agreements complement the upgrading in transport infrastructure; (iii) products that use time sensitive inputs, and countries that are highly exposed to the new infrastructure and that are integrated in the global production chains have larger trade gains. Keywords: Belt and Road Initiative, Transport Infrastructure, GIS Analysis, Trade Flows, Time Sensitivity, Input-output Linkages
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