China proposed the Belt and Road Initiative (BRI) in 2013 to improve connectivity and cooperation on a transcontinental scale.

Quantifying impacts for a project as vast as the BRI is a major challenge, which is why the World Bank Group conducted this independent analysis of the risks and opportunities of Belt and Road transport corridors.

Supported by empirical research and rigorous economic modelling, Belt and Road Economics aims to help participating countries choose the kinds of investments and reforms that will best meet their development needs. The study also aims to inform the public debates surrounding BRI, by grounding the discussion in data and analysis.

“Achieving the ambitions of the Belt and Road Initiative will require equally ambitious reforms from participating countries.
Improvements in data reporting and transparency especially around debt, open government procurement and adherence to the highest social and environmental standards will help significantly.”

Ceyla Pazarbasioglu
Vice President for Equitable Growth, Finance, and Institutions, World Bank Group

 

Summary:

Belt and Road transport corridors have the potential to substantially improve trade, foreign investment, and living conditions for citizens in its 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.

1. Infrastructure and policy gaps in Belt and Road corridor economies hinder trade and foreign investment. New infrastructure can help close these gaps, but it is costly—and investments are occurring in the context of rising public debt.

Trade in BRI corridor economies is estimated to be 30 percent below potential, and FDI is an estimated 70 percent below potential.

2. BRI transport projects can expand trade, increase foreign investment, and reduce poverty—by lowering trade costs. Yet, for some countries, the costs of new infrastructure could outweigh the gains.

If fully implemented, BRI transport projects could increase trade between 1.7 and 6.2 percent for the world, increasing global real income by 0.7 to 2.9 percent.

3. Complementary policy reforms can maximize the positive effects of BRI transport projects and ensure that the gains are widely shared. For some countries, reforms are precondition to having net gains from BRI transport projects.

Real incomes for corridor economies could be an estimated two to four times larger if they implement reforms to reduce border delays and ease trade restrictions.

4. The BRI presents risks common to large infrastructure projects. These risks could be exacerbated by the limited transparency and openness of the initiative and the weak economic fundamentals and governance of several participating countries.

  • Debt Sustainability Risks: Among the 43 corridor economies for which detailed data is available, 12—most of which already face elevated debt levels—could suffer a further medium-term deterioration in their outlook for debt sustainability.
  • Governance Risks: Moving toward international good practices such as open and transparent public procurement would increase the likelihood that BRI projects are allocated to the firms best placed to implement them.
  • Environmental Risks: BRI transport infrastructure is estimated to increase carbon dioxide emissions by 0.3 percent worldwide—but by 7 percent or more in some countries as production expands in sectors with higher emissions.
  • Social Risks: An influx of workers related to an infrastructure project could create risks of gender-based violence, sexually transmitted diseases, and social tensions.

About the Authors

Michele Ruta, Team Leader and Lead Economist, Macroeconomics, Trade & Investment

Michele Ruta is Lead Economist in the Macroeconomics, Trade & Investment Global Practice of the World Bank Group, where he leads the work program on regional integration. He had previous appointments at the International Monetary Fund, the World Trade Organization and the European University Institute. Michele has published in refereed journals such as the Journal of International Economics and contributed to many policy reports, including the World Trade Report of the WTO and the World Development Report of the World Bank, on international and regional integration issues. He holds a PhD in economics from Columbia University and an undergraduate degree from the University of Rome “La Sapienza”.

Matias Herrera Dappe, Senior Economist, Transport

Matías Herrera Dappe is a senior economist in the Transport and ICT Global Practice of the World Bank. He has worked in the field of infrastructure and economic policy for more than 10 years, focusing on the economics of infrastructure investment, private sector participation in infrastructure, performance benchmarking, competition, regulation, and auctions. Before joining the World Bank, he worked with private firms and think tanks and as an independent consultant, advising governments and private firms in Latin America, North America, and Europe. He has published extensively on the topics mentioned, and is an Associate Editor at the Journal of Infrastructure, Policy and Development. He holds a PhD in economics from the University of Maryland.

Somik Lall, Lead Economist, Social, Urban, Rural, & Resilience

Somik V. Lall is the World Bank’s Global Lead on Territorial Development Solutions and its Lead Economist for Urban Development in Africa. Somik heads a World Bank global research program on urbanization and spatial development and previously founded the Urbanization Reviews program. He is a recognized expert on development policy related to urban and territorial competitiveness, agglomeration and clusters, infrastructure, and impact evaluation, with over 18 years’ global experience, most notably in Asia, Africa, and Latin America. He was a core team member of the World Development Report 2009: Reshaping Economic Geography, Senior Economic Counselor to the Indian Prime Minister’s National Transport Development Policy Committee, and Lead Author of the World Bank’s flagship report Planning, Connecting, and Financing Cities Now as well as Africa’s Cities: Opening Doors to the World.

Chunlin Zhang, Lead Private Sector Specialist, Finance, Competitiveness & Innovation

Chunlin Zhang is a Lead Private Sector Development Specialist in the World Bank Group. He joined the Bank in 1999 and has since worked on countries in the East Asia and Pacific Region and the Africa Region. He led numerous World Bank analytical and advisory activities in areas including private sector development, state owned enterprises reform, public service reform, innovation and entrepreneurship, economic diversification and inequality, and authored an extensive range of reports and policy papers for client countries. Chunlin Zhang studied economics in Nankai University and Peking University in China and holds a Ph.D. in economics from the China Academy of Social Sciences.

Belt and Road Econmics