How Much Will the Belt and Road Initiative Reduce Trade Costs?

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Who Wins, Who Loses? Understanding the Spatially Differentiated Effects of the Belt and Road Initiative

“…The multimodal network used in (de Soyres et al, 2018) was constructed by merging 2 types of features: maritime and rail. These features are largely non-overlapping and separated in space.…”

“…The final price of traded goods depends on additional transport and trade costs to reach global markets, and these costs vary depending on the location of production or consumption and the available transport routes. Relying on the database of de Soyres et al (2018), we assume that rail corridors are used to reach distant global markets while roads are used to go from the initial location to a main transport hub along the rail corridors. Not all locations within countries have a direct access to these cor-…”

“…Similar systems are in place in China (hukou) and are prevalent in Vietnam (ho-khau) and other countries. Further, addressing major distortions in land and housing markets that limit asset tradability for potential migrants and bids up prices in cities can ease migration costs.In fact, by supporting measures that enhance domestic labor mobility, policy makers in Central Asia can lever BRI to reshape their economic geographies for faster development and avoid the risk associated with spatial efficiency-equity tradeoffs.Appendices A Validation of the Balassa-Samuelson effect in China and Central AsiaPart of the estimates to compute changes in time between the main domestic hubs and the three international gateways (Istanbul, Moscow and Urumqi) come from(de Soyres et al, 2018).…”

The Belt and Road Initiative: Reshaping Economic Geography in Central Asia?

“…The main experiment that we analyze is the change in connectivity due to infrastructure improvements from the Belt and Road Initiative. We consider a reduction in transport times across the region through the building and expansion of railway lines, using World Bank estimates from De Soyres et al (2018). We also, in a penultimate section, add to this the effects of a package of other measures to reduce border crossing times.…”

“…Our paper complements this work, looking at the cells and countries as part of one wider trading system rather than as individual countries each facing an independent shock, and also providing a richer modeling of the supply side response of the economy to shocks. We draw heavily on de Soyres et al (2018), who estimate the transport costs within and across the region, and how these may be affected by the Belt Road Initiative, including through improving rail infrastructure and reducing border times. From this they construct a detailed database of transport times pre-and post-BRI for cities across the region, and beyond.…”