|Title||‘Belt and Road’: The ‘China Dream’?|
China is committed to a very ambitious infrastructure development project, referred to as the ‘Belt and Road Initiative’. This involves the implementation of massive infrastructure investments that, among other things, will reduce transportation costs. This paper employs a structural gravity approach to analyze how the reduction in transportation costs between China and the EU would change trade flows and consumer welfare in China, EU and the rest of the World. We also look at how these welfare improvements compare to the gains from signing shallow and deep free trade agreements with the EU, as well as analyzing how the BRI interplays with the US-led mega trade deals: TTIP and TPP. Our results indicate substantial gains from the BRI for China and the EU. A 30 percent reduction in transportation costs between China and the EU would increase the welfare of a representative consumer in China by 1.51 percent and the EU by 0.97 percent. Combining the BRI with a deep FTA would increase welfare by 4.90 and 2.94 percent respectively. Furthermore, the potential negative effect of the TPP on China is more than compensated by the BRI initiative.
|Keywords||Belt and Road Initiative, China, Gravity model|
|Conference||Third International Forum on the "New Silk Road" and Sino-European Cooperation|
|Web address (URL) of conference proceedings||http://www.cec-duisburg.org/conference-program/|