FOREWORD BELT AND ROAD ECONOMICS
Foreword Since it was announced by President Xi Jinping in 2013, China’s Belt and Road Initiative (BRI) has been marked by both optimism and anxiety. Many who see new business and trading opportunities from the initiative have touted its benefits for growth and development. Others have urged caution, noting significant risks—that developing countries might not be able to service BRI-related debt, that they might be left with stranded infrastructure, and that local communities and the environment could be harmed. Quantifying impacts for a project as vast as the BRI is a major challenge. This study uses empirical research and rigorous economic modeling to provide countries with an objective analysis of opportunities and risks of Belt and Road transport corridors. It provides recommendations to maximize the benefits and mitigate the risks. The analysis shows that Belt and Road transport corridors have the potential to substantially improve trade, foreign investment, and living conditions for citizens in the initiative’s participating countries—but only if China and corridor economies adopt deeper policy reforms that increase transparency, expand trade, improve debt sustainability, and mitigate environmental, social, and corruption risks. Countries that lie along the Belt and Road corridors are ill-served by existing infrastructure— and by a variety of policy gaps. As a result, they undertrade by 30 percent and fall short of their potential FDI by 70 percent. BRI transport corridors will help in two critical ways— lowering travel times and increasing trade and investment. Along economic corridors, the study estimates that travel times will decline by up to 12 percent once completed. Travel times with the rest of the world are estimated to decrease by an average of 3 percent, showing that non-BRI countries and regions will benefit as well. Trade will also increase sharply, if unevenly, for Belt and Road corridor economies.The study estimates that trade will grow from between 2.8 and 9.7 percent for corridor economies and between 1.7 and 6.2 percent for the world. Countries that have a comparative advantage in time-sensitive sectors, such as fresh fruits and vegetables, or that require time-sensitive inputs, like electronics, will be among the biggest winners. Importantly, low-income countries are expected to see a significant 7.6 percent increase in foreign direct investment due to the new transport links. Expanded trade and investment will increase growth and incomes in most corridor economies. Real income gains could increase by up to 3.4 percent at the high end of the study’s estimates, but these gains would largely differ across countries, possibly leading some to incur welfare losses because of the large costs of infrastructure. BRI transport projects could help lift 7.6 million people from extreme poverty (those earning less than $1.90 a day) and 32 million people from moderate poverty (those earning less than $3.20 a day). xiii