Barriers and Bridges: The Trade, Productivity, and Welfare Effects of the Belt and Road Initiative

ABSTRACT

This paper evaluates the impact of the Belt and Road Initiative (BRI) on trade, productivity, and welfare using a multi‐country, multi‐sector Ricardian model with input–output linkages. Gravity estimates reveal asymmetric trade effects: BRI participation increases imports from China in textiles, wood and paper, and electrical machinery, while raising exports to China in metals. These effects are not driven by tariff reductions and are stronger among countries with regional trade agreements (RTAs) with China in several sectors. I then recover model‐implied country‐sector productivity and estimate its response to BRI participation using difference‐in‐differences methods. I find no broad productivity gains from BRI participation. Instead, sectors whose input needs are more closely matched with China's upstream exports experience stronger productivity growth relative to other sectors within the same country, becoming significant in the third year after participation. Counterfactual simulations show that removing the estimated trade cost and productivity effects reduces welfare in BRI countries and China, while generating smaller losses for non‐BRI countries. When the United States raises tariffs on China, China's welfare loss is slightly larger in the absence of the BRI, suggesting that the BRI provides a modest buffer against adverse tariff shocks.