Five Stylized Facts on Belt and Road Countries and Their Trade Patterns

• Published date: 01 January 2023
• Author: Kaku Attah Damoah,Giorgia Giovannetti,Enrico Marvasi
• Date: 01 January 2023
• DOI: http://doi.org/10.1111/cwe.12462

©2023 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 149–181, Vol. 31, No. 1, 2023 149

*Kaku Attah Damoah (corresponding author), Research Fellow, Department of Economics and Management,

University of Florence, Italy. Email: kakuattah.damoah@gmail.com; Giorgia Giovannetti, Professor,

Department of Economics and Management, University of Florence, Italy, and European University Institute,

Italy. Email: giorgia.giovannetti@unifi .it; Enrico Marvasi, Assistant Professor, Department of Economics, Roma

Tre University, Italy. Email: enrico.marvasi@uniroma3.it. The authors express their gratitude to the participants

in the 2018 Villa Mondragone International Economics Conference, the 2018 c.MET05 XV Workshop, the

Italian Trade Study Group (ITSG) 2019 Workshop, the Italian Export Credit Agency (SACE) internal seminar,

Productivity and Global Value Chains at Luiss University, and the Roma Tre University GDS17 seminar for

their comments on previous versions of the paper.

Five Stylized Facts on Belt and Road Countries

and Their Trade Patterns

Kaku Attah Damoah, Giorgia Giovannetti, Enrico Marvasi*

Abstract

The Belt and Road Initiative (BRI) off ers investment opportunities for several Eurasian

countries but not all of them attract investments in the same way. This paper investigates

the geographical distribution of BRI projects completed between 2013 and 2020. The

analysis shows that pre-existing trade patterns are related to the likelihood of a country

receiving completed BRI projects. We single out and provide evidence in support of fi ve

stylized facts. First, BRI countries with completed projects tend to be poorer and larger.

Second, projects are more likely to occur in countries with intense intermediate trade with

China. Third, the countries that received projects have more diversifi ed export structures

and their sectoral specialization overlaps with that of China. Fourth, among middle-high-

income countries, the allocation of projects tends to favor those with high levels of intra-

industry trade. Fifth, among BRI countries with projects, the complexity or sophistication

of the goods traded increases faster with income. These fi ndings suggest that fostering

trade integration has direct benefi ts and may also contribute to further BRI investments.

Keywords: Belt and Road Initiative, China, global value chains, network, trade in

intermediates

JEL codes: F14, F15, F21

I. Introduction

In recent decades, China has decided to improve its connections with Central and

South Asian countries, reinforcing interconnectivity to facilitate regional value

Kaku Attah Damoah et al. / 149–181, Vol. 31, No. 1, 2023

©2023 Institute of World Economics and Politics, Chinese Academy of Social Sciences

150

chains and trade. However, associated potential political and economic risks led to

investments in the region being limited for several years. The offi cial announcement

of the Belt and Road Initiative (BRI) by Xi Jinping in 2013 triggered significant

changes. The BRI is the result of the Chinese government’s effort to enhance and

deepen regional international economic relations. It is also China’s most ambitious

geoeconomic and foreign policy initiative in recent decades. It combines the land-

based Silk Road Economic Belt and the sea-based 21st Century Maritime Silk

Road. This combination creates a network of connectivity across Central, Western,

and Southern Asia, likely to reduce travel time and costs and to enhance trade and

investment. Beyond Asia, the network connectivity encompasses countries in the

Middle East and Northern Africa, Eastern Africa, and Central and Eastern Europe

countries. More than 60 countries are currently involved in the BRI. As of 2020, their

combined GDP was US$23 trillion – 30 percent of the world GDP with a population

of approximately 4.4 billion people – around 60 percent of the world population (World

Bank Group, 2020). With the BRI aiming to enhance connectivity among participating

countries, providing the necessary infrastructure is one of the main objectives of the

BRI. The Asian Development Bank (2017) estimated that developing Asia will need

to invest US$1.7 trillion per year from 2016 to 2030 to maintain its growth levels and

overall poverty eradication objective. However, considering the territorial coverage of

the BRI and the massive infrastructure diff erences between countries, it is necessary

for China – the main fi nancer of BRI – to prioritize certain countries over others.

This paper seeks to investigate specific patterns in the geographical distribution

of completed infrastructure projects under the BRI. Do the projects reflect existing

economic relations or do they seek to reconfigure relations among countries? Our

research is motivated by the potentially different theoretical underpinning of the

geographic distribution of projects under the BRI, linked to China’s need to sustain

its economic development through its international linkages. On one hand, BRI

infrastructure projects may favor countries with similar trade specializations and

comparative advantage, thereby enabling China to relocate labor-intensive production

to the receiving countries. On the other hand, the overall returns on investment projects

could be prioritized and countries with better connectivity and more central positions in

the trade networks would receive more investment. For instance, investments may have

favored countries with trade specialization like that of China, thus reinforcing the status

quo; or, on the other hand, they may have favored sectoral diversification. Similarly,

export capabilities in terms of the sophistication of exported products may represent a

relevant factor aff ecting the allocation of investment projects. Hence, while increasing

trade is likely to be one of the drivers of BRI projects, whether project allocation is

©2023 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Trade Patterns of Belt and Road Countries 151

reinforcing existing linkages or, on the contrary, is going to change and reconfi gure them

is an empirical question.

The paper addresses these questions and provides descriptive evidence on the

BRI countries (i.e., countries that received investments). We analyze carefully the

possible differences in economic, trade, and demographic characteristics between

non-BRI and BRI countries as well as within BRI countries with completed projects

and those without projects at the launch of the initiative. Using data on BRI

infrastructure projects completed between 2013 and 2020, we examine whether BRI

infrastructural investments favor countries that are more involved in intermediate

trade and/or trade more intensely with China; we then assess whether sectoral

specialization plays a role and, fi nally, we consider how BRI countries diff er in terms

of intra-industry trade (IIT) and export sophistication, and to what extent this matters

for investment allocation.1

We summarize our findings into five stylized facts. First, BRI countries are

poor and large. Second, their intermediate exports are skewed towards China, but

intermediate imports are not. Third, their exports are more diversifi ed, and their sectoral

specialization overlaps with that of China. Fourth, high-income BRI countries are more

involved in IIT. Fifth, the export and import sophistication of BRI countries increases

faster with income per capita relative to other countries.

Our fi ndings highlight that BRI investments are closely related to existing trade

patterns and production fragmentation. Hence, they are likely to contribute to

strengthening the global value chains (GVCs) and related production networks but also

to the provision of a reliable base of suppliers to China. China, in turn, may be able to

upgrade its production. If this is the case, then the BRI is a win–win strategy.2

This paper contributes to the literature on BRI by providing new evidence on the

connection between trade and the allocation of BRI projects. While most existing

analysis investigate the possible impacts of the BRI on the reduction in transport costs,

increase in trade potential, or increase in GDP (Villafuerte et al., 2016; Garcia-Herrero

and Xu, 2017; de Soyres et al., 2020), they do not focus on the role of pre-existing trade

patterns as explanatory factors in project allocation. This paper off ers a new perspective

1The focus on trade patterns as a driver of BRI project allocation does not exclude or downplay other

important factors such as geopolitical relations.

2There are many problems with the BRI that we do not address here (e.g., debt, fi nance, and geopolitical). See

for instance, Anastasiadou (2019) and Brakman et al. (2019) for an extensive coverage of these issues. De

Soyres et al. (2019, p. 4) suggest that “Belt and Road transport corridors could substantially improve trade,

foreign investment, and living conditions for citizens in 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.”