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.

Common transport infrastructure: A quantitative model and estimates from the Belt and Road Initiative

“…The parameter , which we treat as common across countries for each sector, is an inverse measure of the amount of variation within the distribution and is related to the notion of comparative advantage. 9 Productivity of all firms is also determined by a deterministic productivity level which can be thought of as the fundamental TFP.…”

“…where is a constant. 10 The unit cost of a good of a variety with draw in ( , ) is then given by: 9 We assume that 1 + > , which is a necessary condition for the prices to be well defined. See Eaton and Kortum (2002) for more on this.…”

Estimating China’s Trade with Its Partner Countries within the Belt and Road Initiative Using Neural Network Analysis

“…The new maritime silk road developed, connects China to the nations of Southeast Asia, the Gulf countries, Northern Africa and Europe. Aside from these links, six economic corridors through which trade is meant to be officially channeled [41,42]. The scope of this development is becoming more and more feasible thereby allowing for it to be interpreted and adopted both by international and regional organizations.…”

Common Transport Infrastructure: A Quantitative Model and Estimates from the Belt and Road Initiative

“…with trade shares defined by (9). In the presence of cross-country transfers governed by the global portfolio, trade balance is given by equating the sum of exports and the portfolio payment to total imports:…”

“…Second, as is apparent from the expression of expenditure shares (9), trade flows are governed by comparative advantage and firms optimize their sourcing decisions by comparing all possible options. Hence, whenever the decrease in trade costs (and, through input-output linkages, in production costs) is not uniform across country pairs and sectors, the new equilibrium not only features an increase in trade flows but also a reallocation of comparative advantage and the relative importance of specific trade partners is affected.…”