The Economics of the Belt and Road Initiative

Transcription

1 The Economics of the Belt and Road Initiative Michele Ruta Astana, Kazakhstan October 4, 2018

2 Roadmap I. The Belt and Road Initiative (BRI) II. Connectivity gaps in BRI economies III. Assessing the economic effects of the BRI IV. Conclusion 2

3 I. The Belt and Road Initiative

4 The Belt and Road Initiative: What is it? The BRI is an ambitious effort to improve regional cooperation and connectivity on a transcontinental scale The BRI consists primarily of the Silk Road Economic Belt and the New Maritime Silk Road, with 6 economic corridors being identified For this study, we focus on 71 economies located along the Belt and Road BRI economies account for over 30% of global GDP, 60% of population, 40% of world trade, and 75% of known energy reserves 4

5 The Belt and Road Initiative: Challenges and Opportunities Opportunities Improving cross-border infrastructure and their management; Reducing trade costs, improving trade rules, boosting trade flows and GVC participation; Improving investment climate and boosting cross-border investment; Improving growth, employment and poverty reduction; Developing lagging and isolated regions. Challenges Ensuring that investment is efficient, in the face of high uncertainty; Coordinating infrastructure investments, lack of data and transparency; Managing environmental, social and governance risks; Ensuring openness and transparency in public procurement; Sustaining public debt. 5

6 II. Connectivity gaps in BRI economies

7 BRI Trade Landscape The share of BRI exports in global exports increased from 21% in 1995 to 37% in 2015 driven by a surge in global value chains BRI share in global exports East Asia and Pacific Europe and Central Asia Middle East and North Africa South Asia Exports (% of World exports) But large disparities persist across regions and countries A gravity model shows that BRI economies under-trade with each other by 30% 7 Source: Boffa (2018)

8 Infrastructure Gaps There are substantial transport and energy infrastructure gaps in developing economies - Mckinsey (2016) finds that the world needs $3.3 trillion in infrastructure annually; according to ADB (2016), developing Asia only requires $1.7 trillion per year in infrastructure BRI economies average score of perceived quality of transport infrastructure is 2.7 out of 5, pointing to important gaps But large differences: 3 of the bottom 20 performers are BRI (Afghanistan, Bhutan, Iraq) As are 3 of the top 20 performers (Hong Kong SAR, Singapore, UAE) Data Source: World Bank, Logistic Performance Indicator (LPI),

9 Policy Gaps Border delays and trade policy barriers are significant in BRI economies Time to Import in BRI countries against G7 MFN Applied Average Tariffs in BRI and G7 countries, 2016 Sub-Saharan Africa South Asia South Asia Sub-Saharan Africa Middle East and North Africa Middle East and North Africa East Asia and Pacific Europe and Central Asia Europe and Central Asia East Asia and Pacific G Border compliance (hours) Time to import G percent Simple average Data Source: WB Doing Business Survey, Data Source: TRAINS (WITS). 9

10 III. Economic effects of the BRI: opportunities and risks

11 BRI-related Transport Projects: A Database 11 Source: Reed and Trubetskoy (2018).

12 BRI and Time to Trade BRI projects will reduce trade times by 2.5% for the world and by 3.2% for BRI economies, thus reducing trade costs 12 Source: de Soyres, Mulabdic, Murray, Rocha and Ruta (2018). Note: For each country, the aggregate proportional decrease is computed as the average of proportional shipping time decrease with all other countries in the world.

13 BTN BIH LBN MKD NPL SVK HUN LVA SGP BGR EST BLR EGY IDN RUS AFG ARM IND AZE BRN ISR TJK KAZ ARE KHM KWT TKM SAU YEM IRQ MMR OMN UZB Trade Effects: A Gravity Analysis A gravity model predicts that BRI projects increase trade among BRI economies by 4%. Industries that value time more experience the largest effect on trade 14% 12% 10% 8% 6% 4% 2% Percentage change in trade by country Percentage change in trade by sector Chemical, ferrous metals, rubber, plastics Livestock Other Mnfcs (paper, metals, mnfcs nec) Vegetable, fruits, nuts, crops Motor, parts and Transport Meat Products Wood and mineral prods Processed food Machinery, parts and electronics Textile, Leather and Apparel Extraction 0% Grains, Seeds and Fibers 0% 2% 4% 6% 8% Direct effect Indirect effect Differences across countries reflect both the extent of improved connectivity and the export structure of the country Sectoral effects reflect different time-sensitivity of products (direct effect) and time sensitivity of inputs (indirect effect) 13 Source: Baniya, Rocha, Ruta (2018).

14 Welfare Effects: A General Equilibrium Analysis Reduction in trade costs due to the BRI boost trade, increasing welfare by up to 1.32% for BRI economies and 0.71% for the world Welfare gains are up to 10% in countries like Lao PDR and Cambodia Impact of Infrastructure improvement on BRI economies on trade Impact of Infrastructure improvement on BRI economies on welfare BRI Area BRI Area World World percent Infrastructure improvement Reduced border delays Reduced preferential tariffs percent Infrastructure improvement Reduced border delays Reduced preferential tariffs 14 Source: Maliszewska and van der Mensbrugghe (2018).

15 Other Effects Effects of the BRI are larger when accounting for within country/region efficiency gains and impact through increased FDI Results from a structural trade model BRI transport projects on GDP of BRI economies through trade Low income And from analysis of growth through FDI BRI transport projects on GDP growth of BRI economies through FDI Low income Upper middle income Lower middle income High income Upper middle income Lower middle income High income percent Source: Chen (2018). Estimated effect on GDP percent Estimated effect on GDP growth 15 Source: De Soyres, Mulabdic, Ruta (2018). Source: Chen (2018).

16 Fiscal Risks External debt from Non-Paris Club, including China, is historically small in BRI economies. But it has increased in higher risk countries. LIDCs BRI: Composition of external public debt LIDCs BRI: External debt by risk of debt BRI LICDs' Public (% of and total) Publicly Guaranteed Debt of the General Government distress (%(in of percent total) of GDP) 100% 100% 90% 90% 80% 80% 70% 70% 60% 50% 40% 30% 20% 10% 0% Paris Club Bilateral Non-Paris Club Bilateral Multilateral Bonds Paris Club Commercial Non-Paris Club Commercial 60% 50% 40% 30% 20% 10% 0% Low Moderate High Paris Club bilateral Non-Paris Club Multilateral Bonds Paris Club commercial Non-Paris Club commercial Source: World Bank and staff estimates. 16

17 Conclusions BRI will potentially have a large effect on trade and welfare for many countries All countries in the world experience a decrease in trade costs Not all sectors/countries will gain but potential aggregate effect is largely positive But many policy barriers still remain in place. Potential gains of BRI would be enlarged by complementary reforms Need to reduce border delays, trade barriers and FDI restrictions But also boost investor protection, open public procurement, ensure private sector participation Economic and non-economic risks associated to BRI projects need to be managed Public debt sustainability, governance, environmental and social concerns Coordination problems, lack of data, poor transparency magnify these challenges 17

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