Belt and road: The China dream?

Karen Jackson*, Oleksandr Shepotylo

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

This paper explores the impact of the Belt and Road Initiative (BRI), in terms of changes in trade costs on trade and consumer welfare in China, the EU, and the rest of the World. We employ a general equilibrium structural gravity approach and conduct a counterfactual analysis. Our key findings are as follows: (i) China and the EU are expected to make substantial gains from the BRI due to reductions in transport costs; (ii) signing and implementing a deep FTA between China and the EU is equivalent to transport cost reductions of 15–20%; (iii) the joint policy of the BRI and FTA is super-additive, magnifying the gains from the separate policies; and (iv) where transport cost reductions are 20% or more, the potential negative effect of the China-US trade war on China is more than compensated for by the BRI initiative. Our results provide evidence that the BRI has the potential to deliver significant welfare gains, particularly if combined with other trade integration schemes, and to counterbalance aggressive trade policies.

Original languageEnglish
Article number101604
JournalChina Economic Review
Volume67
Early online date22 Feb 2021
DOIs
Publication statusE-pub ahead of print - 22 Feb 2021

Keywords

  • Belt and road initiative
  • China
  • EU
  • Gravity model
  • Trade

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