The economic effects of improved transport links in Belt and Road countries

This article is part of the World Economic Forum's Geostrategy platform

China's Belt and Road Initiative (BRI) is an effort to create jointly-built trade routes that emulate the ancient Silk Road and promote regional cooperation in Asia, Europe, and Africa.

Researchers for the RAND Corporation project, China Belt and Road Initiative: Measuring the impact of improving transport connectivity on international trade measured the impact that improving multimodal transport connectivity might have on multilateral trade and economic growth in countries and regions across the BRI.

They found that multimodal transport infrastructure and connectivity can facilitate trade expansion, attract foreign direct investment, speed up the industrialisation process, facilitate regional integration, and accelerate the process of economic growth. Additionally, having a rail connection between trading partners has the largest impact on improving trade in the BRI region.

In 2013, Chinese president Xi Jinping announced plans to build a Silk Road economic belt and a 21st century maritime Silk Road, now known as the Belt and Road Initiative (BRI). The BRI is geared towards encouraging greater policy coordination, infrastructure connectivity, investment and trade cooperation, financial integration, cultural exchange and regional cooperation between Asia, Europe and Africa, by creating jointly-built trade routes emulating the ancient Silk Road. The BRI will encompass more than 70% of the world’s population (4.4 billion) and 62% of the world’s GDP (around US$21 trillion) illustrating the colossal scale of the initiative.

Goals

The project aimed to gather evidence to understand and quantify the potential impact of the BRI investment on multilateral trade and economic growth.

The primary research question was: what is the impact of improving multimodal transport connectivity on multilateral trade and economic growth in countries and regions across the BRI?

This is a proof-of-concept study which aims to stimulate discussion and provide empirical evidence on the impact of transport infrastructure improvements in the BRI region. The study’s findings hope to be of use to policymakers and stakeholders who are interested in this infrastructure plan.

The research team undertook both qualitative and quantitative analyses consisting of literature review, desk research and econometric modelling.

Findings

The literature review concludes:

Our econometric model reveals:

Recommendations

The BRI region suffers from less developed infrastructure than other regions and this can hamper trade development. Therefore, investing in infrastructure related to trade and transport, such as ports, airports, road, and rail links and connections, should remain a priority and sufficient funding should be made available for this purpose.

There could be substantial further benefits if countries and regions along the BRI region coordinate their development plans to achieve compatibility between their policies and the infrastructure implementation. Countries should work together to ensure that the initiative delivers sustained economic, social and environmental benefits across generations.

In addition to improving ‘physical’ transport infrastructure and connectivity, ‘soft’ barriers will need to be converted into facilitators. Legal and regulatory inconsistencies need to be addressed and streamlined across the BRI’s overland and maritime corridors in order to reduce trade costs.

Creating clear security arrangements and mechanisms to ensure the safety and security of goods travelling across the BRI can also help protect investments. Advancements in information and digital technology and automation can help improve multimodal transport connectivity by creating digital and information-sharing networks, collaborative platforms and opportunities to improve efficiency and supply-chain resilience.

This is a proof-of-concept study and targeted at stimulating discussion and providing empirical evidence on the order of magnitude of transport infrastructure improvements in the BRI region.

We hope that the findings will be of use to policymakers and stakeholders who are interested in this infrastructure plan.

China Belt and Road Initiative: Measuring the impact of improving transport connectivity on international trade, Hui Lu, Charlene Rohr, Marco Hafner, Anna Knack, the RAND Corporation