CHANGE IN COMPREHENSIVE BILATERAL TRADE COST UNDER CHINA'S BELT AND ROAD INITIATIVE

Abstract

China’s Belt and Road Initiative was announced in 2013 with the goal of improving international cooperation mainly through enhancing infrastructures and reducing transportation costs. Various economies are expecting to benefit, especially those within the Belt and Road Initiative region. I estimate how much the bilateral trade cost might decline among 71 of the Belt and Road economies through the use of a Difference-in-Difference model. The bilateral trade costs I analyze are comprehensive, which include all bilateral costs involved not only in transportation and tariff, but also other direct and indirect costs. The result shows that the comprehensive bilateral trade cost for agricultural goods in the BRI economies decline 14.14% compared to that of non-BRI economies. For manufacturing goods, the comprehensive bilateral trade cost decline 5.15%. The decrease is less for the total products which are the sum of agricultural goods and manufacturing goods(4.59%). With more infrastructure projects and other facilitation policies on the way, there could be further decreases in international comprehensive trade costs in the future.