The Belt and Road Initiative’s effect on supply-chain trade: evidence from structural gravity equations

Abstract

This article considers the effect of China's Belt and Road Initiative on supply-chain trade for 64 economies in the period 2002-2011. We employ a structural gravity equation to estimate the impact of trade-cost reducing measures-notably infrastructural improvements and the creation of free trade agreements-on supply-chain trade and welfare in general equilibrium. We find that infrastructural investments will yield asymmetric benefits to China, Russia and Southeast Asian countries stemming from greater European market access. Our results also suggest that China's alternatives to foster (inter)regional economic growth through the Regional Comprehensive Economic Partnership and the Trans-Pacific Partnership offer much less attractive economic prospects.